LEXINGTON INTERNATIONAL FUND INC, 485APOS, 2000-05-26

LEXINGTON INTERNATIONAL FUND INC
485APOS, 2000-05-26

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As filed with the Securities and Exchange Commission on May 26, 2000
Registration No. 33-72226
811-8172
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.

Post-Effective Amendment No. 8 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 10 [X]
(Check appropriate box or boxes.)

LEXINGTON INTERNATIONAL FUND, INC.
--------------------------------------------------
(Exact name of Registrant as specified in Charter)

Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
----------------------------------------
(Address of principal executive offices)

Registrant's Telephone Number: (201) 845-7300

Lisa Curcio, Secretary
Lexington International Fund
Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
------------------------------------------------------
(Name and address of agent for service)

With a copy to:
Carl Frischling, Esq.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue, New York, NY 10022

Approximate date of proposed public offering

It is proposed that this filing will become effective July 26, 2000
pursuant to Paragraph (a)(1) of Rule 485.

The Registrant has registered an indefinite number of shares pursuant to Section
24(f) of the Investment Company Act of 1940. A Rule 24f-2 Notice for the
Registrant's fiscal year ending December 31, 1999 was filed on March 31, 2000.

================================================================================
<PAGE>
PILGRIM(SM)

FUNDS FOR SERIOUS INVESTORS

Prospectus
Classes: A, B and C
July 26, 2000

U.S. EQUITY FUND
Pilgrim Growth and Income

INTERNATIONAL EQUITY FUNDS
Pilgrim Global Corporate Leaders
Pilgrim International
Pilgrim Worldwide Emerging Markets
Pilgrim Global Technology
Pilgrim SmallCap Asia Growth
Pilgrim Troika Dialog Russia

INCOME FUNDS
Pilgrim GNMA Income
Pilgrim Global Income

PRECIOUS METALS FUNDS
Pilgrim Gold
Pilgrim Silver

This prospectus contains important information about investing in the Pilgrim
Funds. You should read it carefully before you invest, and keep it for future
reference. Please note that your investment: is not a bank deposit, is not
insured or guaranteed by the FDIC, the Federal Reserve Board or any other
government agency and is affected by market fluctuations. There is no guarantee
that the Funds will achieve their objectives. As with all mutual funds, the
Securities and Exchange Commission (SEC) has not approved or disapproved these
securities nor has the SEC judged whether the information in this prospectus is
accurate or adequate. Any representation to the contrary is a criminal offense.
<PAGE>
[GRAPHIC]

These pages contain a description of each of our funds included in this
prospectus, including its objective, investment strategy and risks.

OBJECTIVE
[GRAPHIC]

You'll also find:

INVESTMENT STRATEGY
[GRAPHIC]

HOW THE FUND HAS PERFORMED. A chart that shows the fund's financial performance
for the past ten years (or since inception, if shorter).

RISKS
[GRAPHIC]

WHAT YOU PAY TO INVEST. A list of the fees and expenses you pay -- both directly
and indirectly-- when you invest in a fund.

HOW THE FUND HAS PERFORMED

WHAT'S INSIDE
An introduction to the Pilgrim Funds 1
Funds at a Glance 2

U.S. EQUITY FUND
Pilgrim Growth and Income 4

INTERNATIONAL EQUITY FUNDS
Pilgrim Global Corporate Leaders 6
Pilgrim International 8
Pilgrim Worldwide Emerging Markets 10
Pilgrim Global Technology 13
Pilgrim SmallCap Asia Growth 15
Pilgrim Troika Dialog Russia 18

INCOME FUNDS
Pilgrim GNMA Income 20
Pilgrim Global Income 22

PRECIOUS METALS FUNDS
Pilgrim Gold 24
Pilgrim Silver 26

What you pay to invest 28
Shareholder guide 31
Management of the Funds 41
Dividends, distributions and taxes 45
More information about risks 46
Financial highlights 49
Where to go for more information Backcover
<PAGE>
INTRODUCTION TO THE PILGRIM FUNDS

Risk is the potential that your investment will lose money or not earn as much
as you hope. All mutual funds have varying degrees of risk, depending on the
securities they invest in. Please read this prospectus carefully to be sure you
understand the principal risks and strategies associated with each of our Funds.
You should consult the Statement of Additional Information (SAI) for a complete
list of the risks and strategies.

[GRAPHIC]

If you have any questions about the Pilgrim Funds, please call your financial
consultant or us at 1-800-992-0180.

This prospectus is designed to help you make informed decisions about your
investments. In order to make it easy for you to find what you're looking for,
we have divided the Pilgrim Funds into four categories.

U.S. EQUITY FUNDS

Our 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

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

Pilgrim offers both aggressive and conservative Income Funds.

They may suit you if you:

* want a regular stream of income.

Income Funds 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.

PRECIOUS METALS FUNDS

Pilgrims's Precious Metals Funds seek long-term growth.

They may suit you if you:

* are investing for the long-term--at least several years
* are looking for exposure to international markets and precious metals
* are willing to accept higher risk in exchange for long-term growth.

[GRAPHIC] If you have any questions, please call 1-800-992-0180.

1
<PAGE>
FUNDS AT A GLANCE

This table is a summary of the objectives, main investments and risks of each
Pilgrim Fund. It is designed to help you understand the differences between the
Funds, the main risks associated with each, and how risk and investment
objectives relate. This table is only a summary. You should read the complete
descriptions of each Fund's investment objectives, strategies and risks, which
begin on page __.

<TABLE>
<CAPTION>
INVESTMENT
FUND OBJECTIVE MAIN INVESTMENTS MAIN RISKS
---- --------- ---------------- ----------
<S> <C> <C> <C> <C>
U.S. Equity Growth and Income Long-term capital Equity securities of Price volatitlity
Fund Fund Adviser: appreciation, with large, ably managed, and other risks that
Pilgrim income as a and well-financed accompany an
Investments, Inc. secondary objective U.S. companies investment in equity
securities.

International Global Corporate Long-term growth of Equity securities Price volatility and
Equity Funds Leaders Fund capital and equity other risks that
Adviser: Pilgrim equivalents of accompany an
Investments, Inc. foreign and U.S. investment in
companies. [growth-oriented]
foreign equities.
Sensitive to
currency exchange
rates, international
political and
economic conditions
and other risks that
affect foreign
securities.

International Fund Long-term growth of Equity securities Price volatility and
Adviser: Pilgrim capital and equity other risks that
Investments, Inc. equivalents of accompany an
companies outside of 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.

Worldwide Emerging Long-term growth of Equity securities Price volatility,
Markets Fund capital and equity liquidity and other
Adviser: Pilgrim equivalents of risks that accompany
Investments, Inc. emerging market an investment in
companies. equities from
emerging countries.
Sensitive to
currency exchange
rates, international
political and
economic conditions
and other risks that
affect foreign
securities.

Global Technology Long-term growth of Equity securities or Price volatility due
Fund Adviser: capital equity equivalents to non-diversification
Pilgrim Investments, of technology or and concentration in
Inc. information stocks in the
infrastructure technology sector.
related companies. May be sensitive to
currency exchange
rates, international
political and
economic conditions,
illiquidity and
other risks that
affect emerging
market securities.

SmallCap Asia Growth Long-term capital Equity securities Price volatility,
Fund Adviser: appreciation and equity liquidity and other
Pilgrim Investments, equivalents of risks that accompany
Inc. Sub-Adviser: companies in the an investment in
Crosby Asset Asia region having equity securities of
Management (US) Inc. market issuers in a single
capitalizations of region. Sensitive to
less than $1 currency exchange
billion. rates, international
political and
economic conditions
and other risks that
affect foreign
securities.
</TABLE>

2
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Troika Dialog Russia Long-term capital Equity securities of Risk due to
Fund Adviser: appreciation Russian companies. extremely volatile
Pilgrim Investments, and often illiquid
Inc. Sub-Adviser: nature of the
Troika Dialog Asset Russian securities
Management (Cayman markets, and
Islands), Ltd. volatility due to
non-diversification
of investments.
Particularly
sensitive to Russian
political and
economic conditions,
currency exchange
rates, and other
risks that affect
funds investing in
securities of a
single country.
Potential for
expropriation,
dilution,
devaluation, default
or excessive
taxation by the
Russian government.

Income Funds GNMA Income Fund High current income, Mortgage-backed GNMA Credit, interest
Adviser: Pilgrim consistent with Certificates that rate, prepayment and
Investments, Inc. liquidity and safety are guaranteed as to other risks that
of principal the timely payment accompany an
of principal and investment in
interest by the U.S. government bonds and
Government. mortgage related
investments.
Generally has less
credit risk than the
other income funds.

Global Income Fund High current income, Foreign and domestic Credit, liquidity,
Adviser: Pilgrim with capital high yield, lower interest rate and
Investments, Inc. appreciation as a rated or unrated other risks that
secondary objective debt securities. accompany an
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.

Precious Metals Gold Fund Adviser: Capital appreciation Gold and securities Price volatility due
Funds Pilgrim Investments, and a hedge against of companies engaged to non-diversification
Inc. the loss of buying in mining or and concentration in
power of the U.S. processing gold the gold/precious
Dollar throughout the metals industry. The
world. 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.

Silver Fund Adviser: Maximum total return Securities of Price volatility due
Pilgrim Investments, from long-term companies which are to non-diversification
Inc. growth of capital engaged in the and concentration in
and income exploration, mining, stocks in the silver
processing, industry. The market
fabrication or for silver is
distribution of limited and widely
silver and in silver unregulated and is
bullion. 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.
</TABLE>

3
<PAGE>
U.S. EQUITY FUNDS ADVISER
PILGRIM INVESTMENTS, INC.

PILGRIM GROWTH AND INCOME FUND

OBJECTIVE

* The Fund's principal investment objective is long-term capital
appreciation. Income is a secondary objective.

INVESTMENT STRATEGY

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

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.

4
<PAGE>
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)

GROWTH & INCOME FUND
--------------------
90 %
--------
91 %
--------
92 %
--------
93 %
--------
94 %
--------
95 %
--------
96 %
--------
97 %
--------
98 %
--------
99 %
--------

- ----------
(1) These figures are as of 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 26, 2000, the Fund's outstanding shares were classified as
"Class A" shares. The returns in the bar chart are based upon the
performance of the Fund's Class A shares, adjusted to reflect the current
Class A expenses.

Best and worst quarterly performance during this period:

[___ quarter 199__: _____%]
[___ quarter 199__: _____%]

The Fund's year-to-date total return as of June 30, 2000 was _____%.

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

Class A (3) (4) S&P 500 Index (5)
--------------- -----------------
One year, ended December 31, 1999 [_____]% [_____]%
Five years, ended December 31, 1999 [_____]% [_____]%
Ten years, ended December 31, 1999 [_____]% [_____]%

(3) This table shows the performance of the Class A shares of the Fund. Class B
and Class C shares were not offered during the period ended December 31,
1999.
(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.

5
<PAGE>
INTERNATIONAL EQUITY FUNDS ADVISER
PILGRIM INVESTMENTS, INC.

PILGRIM GLOBAL CORPORATE LEADERS FUND

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 that the adviser believes represent "corporate
leaders" in their respective industries.

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.

RISKS

You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:

6
<PAGE>
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.

HOW THE FUND HAS PERFORMED

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)

GLOBAL CORPORATE LEADERS FUND
-----------------------------
90 %
---------
91 %
---------
92 %
---------
93 %
---------
94 %
---------
95 %
---------
96 %
---------
97 %
---------
98 %
---------
99 %
---------

Best and worst quarterly performance during this period:

[___ quarter 199__: _____%]
[___ quarter 199__: _____%]

The Fund's year-to-date total return as of June 30, 2000 was _____%.

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 World Index.

Average Annual Total Returns

Class A (3) (4) MSCI World Index (5)
--------------- --------------------
One year, ended December 31, 1999 [_____]% [_____]%
Five years, ended December 31, 1999 [_____]% [_____]%
Ten years, ended December 31, 1999 [_____]% [_____]%

(3) This table shows the performance of the Class A shares of the Fund.
(4) Reflects a deduction of sales charge of 5.75%.
(5) The Morgan Stanley Capital International World (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
<PAGE>
INTERNATIONAL EQUITY FUNDS ADVISER
PILGRIM INVESTMENTS, INC.

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

The Fund will invest at least 65% of its total assets in securities and
equivalents of companies outside of the U.S. The Fund generally invests the
remaining 35% of its total assets in a similar manner, but may invest those
assets in companies in the United States, in debt securities or other
investments.

The Fund intends to provide investors with the opportunity to invest in a
portfolio of securities of companies and governments located throughout the
world. In making the allocation of assets among the various countries and
geographic regions, the Fund considers such factors as prospects for relative
economic-growth; expected levels of inflation and interest rates; government
polices influencing business conditions; the range of investment opportunities
available to international investors; and other pertinent financial, tax,
social, political and national factors - all in relation to prevailing prices of
the securities in each country or region.

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 stocks
that the Fund invests in.

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
<PAGE>
HOW THE FUND HAS PERFORMED

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)

INTERNATIONAL FUND
------------------

94 %
---------
95 %
---------
96 %
---------
97 %
---------
98 %
---------
99 %
---------

Best and worst quarterly performance during this period:

[___ quarter 199__: _____%]
[___ quarter 199__: _____%]

The Fund's year-to-date total return as of June 30, 2000 was _____%.

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

Class A (3) (4) MSCI EAFE Index (5)
--------------- -------------------
One year, ended December 31, 1999 [_____]% [_____]%
Five years, ended December 31, 1999 [_____]% [_____]%
Since inception of Class A (6) [_____]% [_____]%

(3) This table shows the performance of the Class A shares of the Fund. Class B
and Class C shares were not offered during the period ended December 31,
1999.
(4) Reflects a deduction of sales charge of 5.75%.
(5) The Morgan Stanley Capital International Europe Australasia 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.
(6) Class A commenced operations on ______________.

9
<PAGE>
INTERNATIONAL EQUITY FUNDS ADVISER
PILGRIM INVESTMENTS, INC.
SUB-ADVISER
STRATOS ADVISORS, INC.

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, 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, short-term or medium-term debt securities or other types of
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.

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.

10
<PAGE>
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.

11
<PAGE>
HOW THE FUND HAS PERFORMED

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)

WORLDWIDE EMERGING MARKETS FUND
-------------------------------
90 %
--------
91 %
--------
92 %
--------
93 %
--------
94 %
--------
95 %
--------
96 %
--------
97 %
--------
98 %
--------
99 %
--------

Best and worst quarterly performance during this period:

[___ quarter 199__: _____%]
[___ quarter 199__: _____%]

The Fund's year-to-date total return as of June 30, 2000 was _____%.

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 MSCI Emerging Markets Free Index and the MSCI EAFE Index.

AVERAGE ANNUAL TOTAL RETURNS

<TABLE>
<CAPTION>
Class A (4) (5) MSCI EMF Index (6) MSCI EAFE Index (7)
--------------- ------------------ -------------------
<S> <C> <C> <C>
One year, ended December 31, 1999 [_____]% [_____]% [_____]%
Five years, ended December 31, 1999 [_____]% [_____]% [_____]%
Ten years, ended December 31, 1999 [_____]% [_____]% [_____]%
</TABLE>

(4) This table shows the performance of the Class A shares of the Fund.
(5) Reflects a deduction of sales charge of 5.75%.
(6) The Morgan Stanley Capital International Emerging Markets Free (MSCI EMF)
Index is an unmanaged index that measures the performance of securities
listed on exchanges in developing nations throughout the world.
(7) The Morgan Stanley Capital International Europe Australasia 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.

12
<PAGE>
INTERNATIONAL EQUITY FUNDS ADVISER
PILGRIM INVESTMENTS, INC.
SUB-ADVISER
STRATOS ADVISORS, INC.

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 of technology or information
infrastructure related companies. The adviser considers technology or
information age companies to be in the following 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 debt securities
denominated in U.S. or foreign currencies.

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.

13
<PAGE>
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 obsoleescence 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.

HOW THE FUND HAS PERFORMED

The Fund does not have a performance history because it commenced operations on
___________, 1999.

14
<PAGE>
INTERNATIONAL EQUITY FUNDS ADVISER
PILGRIM INVESTMENTS, INC.
SUB-ADVISER
CROSBY ASSET MANAGEMENT (U.S.) INC.

PILGRIM SMALL CAP 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 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);
* debt securities; and
* other investments.

The Fund considers the following countries to be in the Asia Region:(1)

Bangladesh India Malaysia Singapore Taiwan
China Indonesia Pakistan Sri Lanka Thailand
Hong Kong Korea The Philippines Vietnam

- ----------
(1) 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.

15
<PAGE>
RISKS

You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:

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.

RISKS OF FOREIGN INVESTING -- foreign investments maybe 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 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.

HOW THE FUND HAS PERFORMED

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)

SMALL CAP ASIA GROWTH FUND
--------------------------
95 -4.39%
96 25.50%
97 -42.32%
98 -19.41%
99

16
<PAGE>
BEST AND WORST QUARTERLY PERFORMANCE DURING THIS PERIOD:

[___ quarter 199__: _____%]
[___ quarter 199__: _____%]

The Fund's year-to-date total return as of June 30, 2000 was _____%.

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 MSCI Far East Free ex Japan Index and the MSCI EAFE Index.

AVERAGE ANNUAL TOTAL RETURNS

<TABLE>
<CAPTION>
MSCI FAR EAST FREE EX
CLASS A (3) (4) JAPAN INDEX (5) MSCI EAFE INDEX (6)
--------------- --------------- -------------------
<S> <C> <C> <C>
One year, ended December 31, 1999 [_____]% [_____]% [_____]%
Five years, ended December 31, 1999 [_____]% [_____]% [_____]%
Since inception of Class A (7) [_____]% [_____]% [_____]%
</TABLE>

(3) This table shows the performance of the Class A shares of the Fund.
Class B shares were not offered during the period ended December 31,
1999.
(4) Reflects a deduction of sales charge of 5.75%.
(5) The Morgan Stanley Capital International (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.
(6) The Morgan Stanley Capital International Europe Australasia 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.
(7) Class A commenced operations on July 3, 1995.

17
<PAGE>
INTERNATIONAL EQUITY FUNDS ADVISER
PILGRIM INVESTMENTS, INC.
SUB-ADVISER
TROIKA DIALOG ASSET
MANAGEMENT (CAYMAN ISLANDS) LTD.

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 and equity equivalents of Russian companies. 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. 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 markets 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 Lexington 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.

18
<PAGE>
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.

HOW THE FUND HAS PERFORMED

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)

TROIKA DIALOG RUSSIA FUND
-------------------------
96 %
--------
97 %
--------
98 %
--------
99 %
--------

Best and worst quarterly performance during this period:

[___ quarter 199__: _____%]
[___ quarter 199__: _____%]

The Fund's year-to-date total return as of June 30, 2000 was _____%.

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

<TABLE>
<CAPTION>
RUSSIAN TRADING
CLASS A (3)(4) MOSCOW TIMES INDEX (5) SYSTEM INDEX (6)
-------------- ---------------------- ----------------
<S> <C> <C> <C>
One year, ended December 31, 1999 [_____]% [_____]% [_____]%
Since inception of Class A (7) [_____]% [_____]% [_____]%
</TABLE>

(3) This table shows the performance of the Class A shares of the Fund. Class B
shares were not offered during the period ended December 31, 1999.
(4) Reflects a deduction of sales charge of 5.75%.
(5) [Add description of Moscow Times Index]
(6) [Add description of Russian Trading System Index]
(7) Class A commenced operations on July 3, 1996.

19
<PAGE>
INCOME FUNDS ADVISER
PILGRIM INVESTMENTS, INC.

PILGRIM GNMA INCOME FUND

OBJECTIVE

* 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 mortgage-backed GNMA ("Ginnie Mae")
Certificates that are guaranteed as to the timely payment of principal
and interest by the United States Government.

INVESTMENT STRATEGY

Under normal conditions, the Fund will invest at least 80% of the value of its
total assets in Government National Mortgage Association ("GNMA")
mortgage-backed securities (also known as "GNMA 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.

RISKS

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.

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.

20
<PAGE>
HOW THE FUND HAS PERFORMED

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)

GNMA INCOME FUND
----------------
90 %
--------
91 %
--------
92 %
--------
93 %
--------
94 %
--------
95 %
--------
96 %
--------
97 %
--------
98 %
--------
99 %
--------

BEST AND WORST QUARTERLY PERFORMANCE DURING THIS PERIOD:

[___ quarter 199__: _____%]
[___ quarter 199__: _____%]

The Fund's year-to-date total return as of June 30, 2000 was _____%.

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
CLASS A (3) (4) SECURITIES INDEX (5)
--------------- --------------------
One year, ended December 31, 1999 [_____]% [_____]%
Five years, ended December 31, 1999 [_____]% [_____]%
Ten years, ended December 31, 1999 [_____]% [_____]%

(3) This table shows the performance of the Class A shares of the Fund. Class B
and Class C shares were not offered during the period ended December 31,
1999.
(4) Reflects a deduction of sales charge of 4.75%.
(5) The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index
that measures [add description of index].

21
<PAGE>
INCOME FUNDS ADVISER
PILGRIM INVESTMENTS, INC.

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.

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.

22
<PAGE>
HOW THE FUND HAS PERFORMED

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)

GLOBAL INCOME FUND
------------------
90 %
--------
91 %
--------
92 %
--------
93 %
--------
94 %
--------
95 %
--------
96 %
--------
97 %
--------
98 %
--------
99 %
--------

- ----------
(1) These figures are as of 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 26, 2000, the Fund's outstanding shares were classified as
"Class A" shares. The returns in the bar chart are based upon the
performance of the Fund's Class A shares, adjusted to reflect the current
Class A expenses.

(3) Prior to December 31, 1994, the Fund operated under a different investment
objective.

BEST AND WORST QUARTERLY PERFORMANCE DURING THIS PERIOD:

[___ quarter 199__: _____%]
[___ quarter 199__: _____%]

The Fund's year-to-date total return as of June 30, 2000 was _____%.

AVERAGE ANNUAL TOTAL RETURNS

LEHMAN BROTHERS
GLOBAL BOND
CLASS A (4) (5) INDEX (6)
--------------- ---------
One year, ended December 31, 1999 [_____]% [_____]%
Five years, ended December 31, 1999 [_____]% [_____]%
Ten years, ended December 31, 1999 [_____]% [_____]%

(4) This table shows the performance of the Class A shares of the Fund. Class B
and Class C shares were not offered during the period ended December 31,
1999.
(5) Reflects a deduction of sales charge of 4.75%.
(6) The Lehman Brothers Global Bond Index is an unmanaged index that measures
[add description of index].

23
<PAGE>
PRECIOUS METALS FUNDS ADVISER
PILGRIM INVESTMENTS, INC.

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

Under normal conditions the Fund will invest at least 65% of the value of its
total assets in gold and the equity securities of companies engaged in mining or
processing gold ("gold-related securities"). The Fund may also invest in other
precious metals, including platinum, palladium and silver. The Fund intends to
invest less than half of the value of its assets in gold and other precious
metals.

The Fund's performance and ability to meet its objective will be largely
dependent on the market value of gold. The portfolio manager seeks to maximize
on advances and minimize on declines by monitoring and anticipating shifts in
the relative values of gold related companies throughout the world. A
substantial portion of the Fund's investments 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:

PRECIOUS METALS RISK -- the Fund's focus on precious metals and precious metal
stocks may expose the investor to additional risks. The market for gold or other
precious metals is concentrated in countries that have the potential for
instability and the market for gold and other precious metals is widely
unregulated. As a result, the price of precious gold and precious metal stocks,
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.

24
<PAGE>
HOW THE FUND HAS PERFORMED

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)

GOLD FUND
---------
90 %
--------
91 %
--------
92 %
--------
93 %
--------
94 %
--------
95 %
--------
96 %
--------
97 %
--------
98 %
--------
99 %
--------

BEST AND WORST QUARTERLY PERFORMANCE DURING THIS PERIOD:

[___ quarter 199__: _____%]
[___ quarter 199__: _____%]

The Fund's year-to-date total return as of June 30, 2000 was ____%.

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 S&P 500 Index and gold bullion.

AVERAGE ANNUAL TOTAL RETURNS

<TABLE>
<CAPTION>
CLASS A (3) (4) S&P 500 INDEX (5) GOLD BULLION (6)
--------------- ----------------- ----------------
<S> <C> <C> <C>
One year, ended December 31, 1999 [_____]% [_____]% [_____]%
Five years, ended December 31, 1999 [_____]% [_____]% [_____]%
Ten years, ended December 31, 1999 [_____]% [_____]% [_____]%
</TABLE>

(3) This table shows the performance of the Class A shares of the Fund.
(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.
(6) [Add description of Gold Bullion]

25
<PAGE>
PRECIOUS METALS FUNDS ADVISER
PILGRIM INVESTMENTS, INC.

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. 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 debt securities.

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.

RISKS

You could lose money on an investment in the Fund. The Fund's investments may be
affected by the following additional risks:

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.

26
<PAGE>
HOW THE FUND HAS PERFORMED

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)

SILVER FUND
-----------
92 %
--------
93 %
--------
94 %
--------
95 %
--------
96 %
--------
97 %
--------
98 %
--------
99 %
--------

BEST AND WORST QUARTERLY PERFORMANCE DURING THIS PERIOD:

[___ quarter 199__: _____%]
[___ quarter 199__: _____%]

The Fund's year-to-date total return as of June 30, 2000 was ____%.

AVERAGE ANNUAL TOTAL RETURNS

<TABLE>
<CAPTION>
CLASS A (3)(4) S&P 500 INDEX (5) SILVER BULLION (6)
-------------- ----------------- ------------------
<S> <C> <C> <C>
One year, ended December 31, 1999 [_____]% [_____]% [_____]%
Five years, ended December 31, 1999 [_____]% [_____]% [_____]%
Since inception of Class A (7) [_____]% [_____]% [_____]%
</TABLE>

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 Pilgrim Funds.

Fees you pay directly

CLASS A CLASS B(1) CLASS C(1)
------- ---------- ----------
MAXIMUM SALES CHARGE ON YOUR INVESTMENT
(AS A % OF OFFERING PRICE) %
Equity Funds and Precious Metals Funds 5.75(2) none none
Income Funds 4.75(2) none none

MAXIMUM DEFERRED SALES CHARGE (AS A % OF
PURCHASE OR SALES PRICE, WHICHEVER IS LESS)
Equity Funds and Precious Metals Funds None(3) 5.00(4) 1.00(5)
Income Funds None(3) N/A N/A

- ----------
(1) Not all Funds offer Classes B and C. Please see page __.
(2) Reduced for purchases of $50,000 and over. Please see page __.
(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 __.
(4) Imposed upon redemption within 6 years from purchase. The fee has scheduled
reductions after the first year. Please see page __.
(5) Imposed upon redemption within 1 year from purchase.

OPERATING EXPENSES PAID EACH YEAR BY THE FUNDS(1) (AS A % OF AVERAGE NET ASSETS)

CLASS A

<TABLE>
<CAPTION>
DISTRIBUTION TOTAL
AND SERVICE FUND
MANAGEMENT (12b-1) OTHER OPERATING FEE WAIVER NET
FUND FEE FEES EXPENSES EXPENSES BY ADVISER(2) EXPENSES
---- --- ---- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth and Income % 0.63 0.25 -- -- -- --
Global Corporate Leaders % 1.00 0.25 -- -- -- --
International % 1.00 0.25 -- -- -- --
Worldwide Emerging Markets % 1.00 0.25 -- -- -- --
Global Technology % 1.25 0.25 -- -- -- --
SmallCap Asia Growth % 1.25 0.25 -- -- -- --
Troika Dialog Russia % 1.25 0.25 -- -- -- --
GNMA Income % 0.57 0.25 -- -- -- --
Global Income % 1.00 0.25 -- -- -- --
Gold % 0.92 0.25 -- -- -- --
Silver % 1.00 0.25 -- -- -- --
</TABLE>

28
<PAGE>
WHAT YOU PAY TO INVEST

OPERATING EXPENSES PAID EACH YEAR BY THE FUNDS(1)
(as a % of average net assets)

CLASS B (3)

OPERATING EXPENSES PAID EACH YEAR BY THE FUNDS(1)
(as a % of average net assets)

CLASS C (3)

- ----------
(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.
(2) Pilgrim Investments has entered into expense limitation agreements with
each Fund [CONFIRM] under which it will limit expenses of the Fund,
excluding interest, taxes, brokerage and extraordinary expenses, subject to
possible reimbursement to Pilgrim Investments within [three] years.
(3) Because Class B and Class C shares are new for the Funds, their expenses
are estimated based on Class A expenses.

29
<PAGE>
WHAT YOU PAY TO INVEST

EXAMPLES

The examples that follow are intended to help you compare the cost of investing
in the Pilgrim Funds with the cost of investing in other mutual funds. Each
example assumes that you invested $10,000, reinvested all your dividends, the
Fund earned an average annual return of 5%, and annual operating expenses
remained at the current level. Keep in mind that this is only an estimate --
actual expenses and performance may vary.

CLASS A

FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- ------ ------- ------- --------

Growth and Income
Global Corporate Leaders
International
Worldwide Emerging Markets
Global Technology
SmallCap Asia Growth
Troika Dialog Russia
GNMA Income
Global Income
Gold
Silver

CLASS B

<TABLE>
<CAPTION>
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>
Growth and Income
International
SmallCap Asia Growth
Troika Dialog Russia
GNMA Income
Global Income
</TABLE>

30
<PAGE>
CLASS C

SHAREHOLDER GUIDE -- CHOOSING A SHARE CLASS

PILGRIM PURCHASE OPTIONS(TM)

Depending upon the Fund, you may select from up to three separate classes of
shares: Class A, Class B, and Class C.

CLASS A

* Front-end sales charge, as described on the next page.
* Distribution and service (12b-1) fees of 0.25%.

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.
* Not offered by Global Corporate Leaders Fund, Worldwide Emerging
Markets Fund, Global Technology 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 Global Corporate Leaders Fund, Worldwide Emerging
Markets Fund, Global Technology Fund, SmallCap Asia Growth Fund,
Troika Dialog Russia Fund, Gold Fund and Silver 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 shares. Orders for Class B shares in excess of $250,000 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.

31
<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:

EQUITY FUNDS AND
PRECIOUS METAL FUNDS INCOME FUNDS
------------------------ --------------------------
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

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:

32
<PAGE>
CLASS B DEFERRED SALES CHARGE

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

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.

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 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 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 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.

* 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 or 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 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
<PAGE>
SHAREHOLDER GUIDE -- HOW TO PURCHASE SHARES

The minimum initial investment amounts for the Pilgrim Funds are as follows:

* Non-retirement accounts: $1,000
* Retirement accounts: $250
* Pre-Authorized Investment Plan: $100 to open; you must invest at least
$100 a month.

The minimum additional investment is $100.

Make your investment using the table on the right.

The Funds and the Distributor reserve the right to reject any purchase order.
Please note that cash, travelers checks, third party checks, money orders and
checks drawn on non-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 IRA's).

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. Investors
Fiduciary Trust Company (IFTC) acts as the custodian under these plans. For
further information, contact the Shareholder Servicing Agent at (800) 992-0180.
IFTC currently receives a $12 custodial fee annually for the maintenance of such
accounts.

<TABLE>
<CAPTION>
INITIAL ADDITIONAL
METHOD INVESTMENT INVESTMENT
------ ---------- ----------
<S> <C> <C>
By Contacting Your A investment professional with Visit or consult a investment
Investment Professional an authorized firm can help you professional.
establish and maintain your
account.

By Mail Visit or consult with a Fill out the Account Additions
investment professional. Make form included on the bottom of
your check payable to the your account statement along
Pilgrim Funds and mail it, with your check payable to the
along with a completed Fund and mail them to the
Application. Please indicate address on the account
your investment professional on statement. Remember to write
the New Account Application your account number on the
check.
</TABLE>

35
<PAGE>
<TABLE>
<S> <C> <C>
By Wire Call the Pilgrim Operations Wire the funds in the same
Department at (800) 336-3436 manner described under
to obtain an account number "Initial Investment."
and indicate your financial
consultant on the account.
Instruct your bank to wire
funds to the Fund in the care
of: Investors Fiduciary Trust
Co. ABA #101003621 Kansas
City, MO credit to:
___________ (the Fund) A/C
#751-8315; for further credit
to: _________________
Shareholder A/C
#_________________ (A/C # you
received over the telephone)
Shareholder Name:
________________________
(Your Name Here) After wiring
funds you must complete the
Account Application and send
it to: Pilgrim Funds P.O. Box
219368 Kansas City, MO 64121-6368
</TABLE>

36
<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
Investment Professional professional. Investment professionals may charge for
their services in connection with your redemption
request, but neither the Fund nor the Distributor
imposes any such charge.

By Mail Send a written request specifying the Fund name and
share class, your account number, the name(s) in
which the account is registered, and the dollar
value or number of shares you wish to redeem to:
Pilgrim Funds
P.O. Box 219368
Kansas City, MO 64121-6368
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.

38
<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.

39
<PAGE>
SHAREHOLDER GUIDE -- TRANSACTION POLICIES

EXCHANGES

You may exchange shares of a Fund for shares of the same class of any other
Pilgrim 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.

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.

SYSTEMATIC EXCHANGE PRIVILEGE

With an initial account balance of at least $5,000 and subject to the
information and limitations outlined above, you may elect to have a specified
dollar amount of shares systematically exchanged, monthly, quarterly,
semi-annually or annually (on or about the 10th of the applicable month), from
your account to an identically registered account in the same class of any other
open-end Pilgrim Fund. This exchange privilege may be modified at any time or
terminated upon 60 days' written notice to shareholders.

SMALL ACCOUNTS

Due to the relatively high cost of handling small investments, the Funds reserve
the right upon 30 days' written notice to redeem, at NAV, the shares of any
shareholder whose account (except for IRAs) has a value of less than $1,000,
other than as a result of a decline in the NAV per share.

40
<PAGE>
MANAGEMENT OF THE FUNDS ADVISER

Pilgrim Investments, Inc. ("Pilgrim") serves as the investment adviser to each
of the Funds. Pilgrim has overall responsibility for the management of the
Funds. 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, Pilgrim is registered as an investment adviser. As
of ___________, 2000, Pilgrim managed over $____ billion in assets. Pilgrim
acquired certain assets of previous advisers to certain of the Funds in separate
transactions that closed on April 7, 1995, May 21, 1999 and July 26, 2000.
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.

Prior to July 26, 2000, Lexington Management Corporation ("Lexington") served as
investment adviser to the Funds. On July 26, 2000, ReliaStar acquired Lexington
Global Asset Management, Inc., the parent company of Lexington, and it was
merged into Pilgrim's parent company, Pilgrim Capital Corporation.

Pilgrim's principal address is 40 North Central Avenue, Suite 1200, Phoenix,
Arizona 85004.

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 advisory fee paid by each Fund
for the most recent fiscal year as a percentage of that Fund's average daily net
assets:

FUND ADVISORY FEE
---- ------------
Growth and Income
Global Corporate Leaders
International
Worldwide Emerging Markets
Global Technology
SmallCap Asia Growth
Troika Dialog Russia
GNMA Income
Global Income
Goldfund
Silver

41
<PAGE>
Pilgrim Directly Manages the Portfolios of the Following Funds:

PILGRIM GROWTH AND INCOME FUND

ALAN H. WAPNICK. Mr. Wapnick is a member of an investment management team that
manages the Pilgrim Global Corporate Leaders Fund. Mr. Wapnick is the lead
manager for Pilgrim Growth and Income Fund. Mr. Wapnick is Senior Vice
President, Director of Domestic Investment Equity Strategy of LMC. Prior to
joining LMC in 1986, Mr. Wapnick was an equity analyst with Merrill Lynch, J.&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.

PILGRIM GLOBAL CORPORATE LEADERS FUND

The following individuals share responsibility for the day-to-day management of
the Global Corporate Leaders Fund:

RICHARD T. SALER. Mr. Saler is a member of an investment management team that
manages the Pilgrim Global Corporate Leaders Fund. He is the lead manager of an
investment management team for Pilgrim International Fund. Mr. Saler is Senior
Vice President, Director of International Investment Strategy of LMC. Mr. Saler
is responsible for international investment analysis and portfolio management at
LMC. He has thirteen years of investment experience. Mr. Saler has focused on
international markets since first joining LMC in 1986. In 1991 he was a
strategist with Nomura Securities and rejoined LMC in 1992. Mr. Saler graduated
from New York University with a B.S. Degree in Marketing and from New York
University's Graduate School of Business Administration with an M.B.A. in
Finance.

PHILIP A. SCHWARTZ, CFA. Mr. Schwartz is also a member of an investment
management team that manages the Pilgrim Global Corporate Leaders Fund and
Pilgrim International Fund. Mr. Schwartz is a Vice President at LMC, a Chartered
Financial Analyst and a member of the New York Society of Security Analysts. He
is responsible for international investment analysis and portfolio management at
LMC, and has twelve years of investment experience. Prior to joining LMC in
1993, Mr. Schwartz was Vice President of European Research Sales with Cheuvreux
De Virieu in Paris and New York, serving the institutional market. Prior to
Cheuvreux, he was affiliated with Olde and Co. and Kidder, Peabody as a
stockbroker. Mr. Schwartz earned his B.A. and M.A. Degrees from Boston
University.

ALAN H. WAPNICK. Please see biography under Pilgrim Growth and Income Fund.

PILGRIM INTERNATIONAL FUND

The following individuals share responsibility for the day-to-day management of
the International Fund:

RICHARD T. SALER. Please see biography under Pilgrim Global Corporate Leaders
Fund.

PHILLIP A. SCHWARTZ, CFA. Please see biography under Pilgrim Global Corporate
Leaders Fund.

PILGRIM GNMA INCOME FUND

DENIS P. JAMISON, CFA. Mr. Jamison manages the Pilgrim GNMA Income Fund,
Lexington Money Market Trust and Pilgrim Global Income Fund. Mr. Jamison is
Senior Vice President and Director of Fixed Income Strategy of LMC. Mr. Jamison
is responsible for fixed-income portfolio management. He is a Chartered
Financial Analyst and a member of the New York Society of Security Analysts.
Prior to joining LMC in 1981, Mr. Jamison spent nine years at Arnold Bernhard &
Company, an investment counseling and financial services organization. At
Bernhard, he was a Vice President supervising the security analyst staff and
managing investment portfolios. He is a specialist in government, corporate and
municipal bonds. Mr. Jamison graduated from the City College of New York with a
B.A. in Economics.

ROSEANN G. MCCARTHY. Ms. McCarthy is a co-manager of the Pilgrim GNMA Income
Fund and the Lexington Money Market Trust. Ms. McCarthy is an Assistant Vice
President of LMC. Prior to joining the 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. Ms. McCarthy is a graduate of Hofstra University with a B.B.A. in
Marketing and has an M.B.A. in Finance from Seton Hall University.

PILGRIM GLOBAL INCOME FUND

DENIS P. JAMISON, CFA. Please see biography under Pilgrim GNMA Income Fund.

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PILGRIM GOLDFUND

JAMES A. VAIL, CFA. Mr. Vail manages the Pilgrim Goldfund and the Pilgrim Silver
Fund. Mr. Vail is a Vice President of LMC and is responsible for precious metals
analysis and portfolio management at LMC. 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 LMC 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. Mr. Vail is a graduate of St. Peter's College with a B.S. and holds an
M.B.A. in Finance from Seton Hall University.

PILGRIM SILVER FUND

JAMES A. VAIL, CFA. Please see biography under Pilgrim Goldfund.

SUB-ADVISERS

PILGRIM WORLDWIDE EMERGING MARKETS FUND
PILGRIM GLOBAL TECHNOLOGY FUND

Stratos Advisors, Inc. (Stratos) is the sub-adviser of Pilgrim Worldwide
Emerging Markets Fund and Pilgrim Global Technology Fund. Stratos is located at
20 Exchange Place, 52nd Floor, New York, NY 10005. Stratos provides investment
advice and management to the Pilgrim Worldwide Emerging Markets Fund and Pilgrim
Global Technology Fund.

ALFREDO M. VIEGAS. Mr. Viegas is a member of the portfolio management team for
Pilgrim Worldwide Emerging Markets Fund. Mr. Viegas is Chief Executive Officer
and Senior Portfolio Manager of Stratos. In 1995, Mr. Viegas established VZB
Partners LLC ("VZB"), an offshore investment manager. Mr. Viegas is responsible
for corporate analysis and bottom-up research. He has concentrated on analyzing
equity opportunities not only in emerging markets but also in newly developing
or frontier markets where the quality of public available information is scarce
and direct research is imperative. Prior to VZB, Mr. Viegas was Vice President
and Latin American Equity Strategist for emerging markets with Salomon Brothers
from 1993 to 1995. From 1991 to 1993, he was a research analyst with Morgan
Stanley. Mr. Viegas is a graduate of Wesleyan University with a B.A. in Classics
and Medieval History.

MOHAMMED ZAIDI. Mr. Zaidi is a member of the Portfolio Management team for the
Pilgrim Worldwide Emerging Markets Fund. Mr. Zaidi is a Portfolio Manager at
Stratos. Mr. Zaidi is responsible for fundamental corporate analysis with a
particular focus on Asian and Middle Eastern markets as well as the Risk Control
Officer. Mr. Zaidi has been a Portfolio Manager at VZB since 1997. Mr. Zaidi was
Chief Financial Officer and a Partner at Paradigm Software, Inc. from 1992 to
1995. Mr. Zaidi is a graduate of the University of Pennsylvania with a B.S. in
Economics from the Wharton School. Mr. Zaidi also holds an M.B.A. in Finance
from M.I.T. Sloan School of Management.

PILGRIM SMALL CAP ASIA GROWTH FUND.

Crosby Asset Management (US) Inc. (Crosby) is the sub-adviser of the Pilgrim
Small Cap Asia Growth Fund. Crosby is located at 32/F Asia Pacific Finance
Tower, Citibank Plaza, 3 Garden Road, Central, Hong Kong. Crosby is a subsidiary
of Crosby Group, Hong Kong. Crosby provides investment advice and management to
Pilgrim Small Cap Asia Growth Fund.

CHRISTINA LAM. Ms. Lam is the lead manager on a portfolio management team that
manages the Pilgrim Small Cap Asia Growth Fund. Ms. Lam is Vice President and
Portfolio Manager of the Pilgrim Small Cap Asia Growth Fund. Ms. Lam joined
Crosby Asset Management in 1991. She is responsible for the investment
management of the listed equity portfolios under the management of Crosby Asset
Management. After graduating with a Law Degree with Honors from Warwick
University, she qualified as a Barrister from Lincoln's Inn in London. In 1987
she joined Schroder Securities Limited in Hong Kong as an investment analyst,
where her coverage included the utilities, industrials and retail sectors and
conglomerates.

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PILGRIM TROIKA DIALOG RUSSIA FUND.

Troika Dialog Asset Management (Cayman Islands) Ltd. ("TDAM") is the sub-adviser
of Pilgrim Troika Dialog Russia Fund. TDAM is located at ______________________.
TDAM provides investment advice and management to Pilgrim Troika Dialog Russia
Fund. TDAM is a majority owned subsidiary of The Bank of Moscow.

TIMOTHY D. MCCARTHY is a member of the portfolio management team that manages
the Pilgrim Troika Dialog Russia Fund. Mr. McCarthy has a B.S. degree in
Economics from the State University of New York at Oneonta and an M.B.A. from
the State University of New York at Binghamton. He joined Troika Dialog, Moscow
in July, 1998. Prior to May, 1998 he was an Executive Director with Alfa Asset
Management, Moscow. From January, 1995 to March, 1997 he was co-founder and
director of Capital Regent Securities, a Moscow based investment and advisory
firm. From June, 1990 to December, 1994 he was a consultant and senior
consultant with Deloitte & Touche Management Consulting in New York.

RICHARD M. HISEY, C.F.A. Mr. Hisey is a member of the portfolio management team
and investment strategist for the Pilgrim Troika Dialog Russia Fund. Mr. Hisey
is Managing Director and Chief Financial Officer of LMC. He is also a Vice
President and a member of the Board of Directors of the Lexington Family of
Mutual Funds. Mr. Hisey is Executive Vice President and Chief Financial Officer
of Lexington Global Assets Managers, Inc., the parent company of LMC. He sits on
the Investment Company Institute's Accounting/Treasurers, International and Tax
Committees. He is a Chartered Financial Analyst and is a member of the New York
Society of Security Analysts. Prior to joining LMC in 1986, Mr. Hisey was a
Senior Financial Analyst for Richardson Vicks, Inc. Mr. Hisey is a graduate with
Distinction of the University of Connecticut with a Bachelor of Arts in Soviet
and Eastern European Studies. His undergraduate work included studies at
Middlebury College and at Leningrad State University in the former Soviet Union.
He also holds an M.B.A. from the University of Connecticut.

RUBEN VARDANIAN is a member of the portfolio management team that manages the
Pilgrim Troika Dialog Russia Fund. Mr. Vardanian is Chairman of the Board of
Troika Dialog Asset Management. He is Vice Chairman of the Board of Directors of
the Depository Clearing Company, Moscow. He is a member of the expert council of
the Federal Securities Commission of Russia and a Director of the Russian
Trading System (RTS). He is also Chairman of the Board of Directors of the
Russian Capital markets self-regulatory organization (NAUFOR). Mr. Vardanian
received a Masters Degree with Distinction from the Finance Department of Moscow
State University. He received post-graduate training with Banca CRT in Italy and
with the Emerging Markets Division of Merrill Lynch in New York.

PAVEL TEPLUKHIN. Dr. Teplukhin is a member of the portfolio management team that
manages the Pilgrim Troika Dialog Russia Fund. He is the President of Troika
Dialog Asset Management. Dr. Teplukhin received a diploma in Economics and a
Doctorate in Economic Analysis and Statistics from Moscow State University. He
also received a Master of Science in Economics/ Macroeconomics from the London
School of Economics. From 1993 to 1996, Dr. Teplukhin was Economic Adviser to
the First Deputy Prime Minister at the Ministry of Finance of the Russian
Federation.

OLEG LARICHEV is a member of the portfolio management team that manages the
Pilgrim Troika Dialog Russia Fund. Mr. Larichev received a Master of Arts in
Economics from the New Economic School, Moscow and a Diploma in Computer
Graphics from Moscow State University. He has been associated with Troika
Dialog, Moscow since September, 1996. Prior to September, 1996 he was an
economics expert with the Russian European Center for Economic Policy. Prior to
April, 1995 he held part-time positions with the World Bank and the Moscow
office of the London School of Economics.

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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:

ANNUALLY (1) SEMI-ANNUALLY(1) QUARTERLY(2) MONTHLY(3)
------------ ---------------- ------------ ----------
Growth and Income
Global Corporate Leaders
International
Worldwide Emerging Markets
Global Technology
SmallCap Asia Growth
Troika Dialog Russia
GNMA Income
Global Income
Gold
Silver

- ----------
(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 A, B or C shares of a Fund invested in another Pilgrim Fund which
offers the same class shares. If you are a shareholder of Pilgrim Prime Rate
Trust, whose shares are not held in a broker or nominee account, you may, upon
written request, elect to have all dividends invested into a pre-existing Class
A account of any open-end Pilgrim Fund.

TAXES

The following information is meant as a general summary for U.S. shareholders.
Please see the 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.

45
<PAGE>
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.

MORE INFORMATION ABOUT RISKS

All mutual funds involve risk -- some more than others -- and there is always
the chance that you could lose money or not earn as much as you hope. A Fund's
risk profile is largely a factor of the principal securities in which it invests
and investment techniques that it uses. The following pages discuss the risks
associated with certain of the types of securities in which the Funds may invest
and certain of the investment practices that the Funds may use. For more
information about these and other types of securities and investment techniques
that may be used by the Funds, see the SAI.

Many of the investment techniques and strategies discussed in this prospectus
and in the Statement of Additional Information are discretionary, which means
that the adviser or sub-adviser can decide whether to use them or not. The
adviser or sub-adviser of a Fund may also use 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. 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.

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MORE INFORMATION ABOUT 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.

INABILITY TO SELL SECURITIES -- 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. 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. 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.

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. 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. 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.

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MORE INFORMATION ABOUT RISKS

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.

INTERESTS IN LOANS. 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. 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 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.

PORTFOLIO TURNOVER. 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.

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OTHER RISKS

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, 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. 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.

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. Each Fund 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.

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 auditor, along with the Fund's financial statements, are
included in the Fund's annual report, which is available upon request.

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U.S. EQUITY FUND

GROWTH AND INCOME FUND

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995 1994
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 20.27 $ 18.56 $ 15.71 $ 14.36 $ 16.16
Net investment income (loss) -- 0.05 0.07 0.22 0.17
Net realized and unrealized gain (loss)
from investment operations 4.30 5.46 4.08 3.00 (0.68)
Total income (loss) from investment operations
Less distributions: 4.30 5.51 4.15 3.22 (0.51)
Distributions from net investment income -- (0.07) (0.13) (0.22) (0.16)
Distributions in excess of net investment income -- -- -- -- --
Distributions from net realized gains (2.66) (3.73) (1.17) (1.65) (0.91)
Distributions in excess of net realized gains (2.66) (3.80) (1.30) (1.87) (1.29)
Total distributions $ 21.91 $ 20.27 $ 18.56 $ 15.71 $ 14.36
-------- -------- -------- -------- --------
Net asset value, end of period 21.42% 30.36% 26.46% 22.57% (3.11)%

TOTAL RETURN $245,790 $228,037 $200,309 $138,901 $124,829

RATIOS/SUPPLEMENTAL DATA 1.16% 1.17% 1.13% 1.09% 1.15%
Net assets, end of period (thousands) 1.16% 1.17% 1.13% 1.09% 1.15%
Ratio of expenses to average net assets,
before reimbursement or waiver 0.06% 0.21% 0.43% 1.38% 1.06%
Ratio of expenses to average net assets, net
of reimbursement or waiver 0.06% 0.21% 0.43% 1.38% 1.06%
Ratio of net investment income (loss) to average
net assets, net of reimbursement or waiver 63.20% 88.15% 101.12% 159.94% 63.04%
Ratio of net investment income (loss) to average
net assets, net of reimbursement or waiver
Portfolio Turnover Rate
</TABLE>

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INTERNATIONAL EQUITY FUNDS

GLOBAL CORPORATE LEADERS FUND

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.59 $ 11.28 $ 11.32 $ 11.17
Net investment income (loss) 0.99 0.03 0.01 0.09
Net realized and unrealized gain (loss)
from investment operations 1.02 0.73 1.84 1.10
Total income (loss) from investment operations 2.01 0.76 1.85 1.19
Less distributions:
Distributions from net investment income (0.80) (0.09) (0.16) (0.29)
Distributions in excess of net investment income -- -- -- (0.13)
Distributions from net realized gains (2.34) (1.36) (1.73) (0.62)
Distributions in excess of net realized gains -- -- -- --
Total distributions (3.14) (1.45) (1.89) (1.04)
Net asset value, end of period $ 9.46 $ 10.59 $ 11.28 $ 11.32
------- ------- ------- -------

TOTAL RETURN 19.06% 6.90% 16.43% 10.69%

RATIOS/SUPPLEMENTAL DATA
Net asset, end of period (thousands) $17,803 $35,085 $37,223 $53,614
Ratio of expenses to average net assets,
before reimbursement or waiver 2.12% 1.75% 1.90% 1.67%
Ratio of expenses to average net assets, net
of reimbursement or waiver 2.12% 1.75% 1.90% 1.67%
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver (0.06)% 0.23% 0.11% 0.48%
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver (0.06)% 0.23% 0.11% 0.48%
Portfolio Turnover Rate 137.33% 177.48% 128.05% 166.35%
</TABLE>

- ----------
* Annualized.
(a) SmallCap Fund commenced operations on January 2, 1996.
(b) Small Cap Asia Growth Fund commenced operations on July 3, 1995.

51
<PAGE>
INTERNATIONAL FUND

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.10 $ 10.86 $ 10.60 $ 10.37
Net investment income (loss) 0.17 0.07 (0.02) (0.01)
Net realized and unrealized gain (loss)
from investment operations 1.74 0.10 1.45 0.61
Net realized and unrealized gain (loss)
from investment operations 1.91 0.17 1.43 0.60
Less distributions:
Distributions from net investment income (0.06) (0.13) (0.20) --
Distributions in excess of net investment income -- -- -- (0.35)
Distributions from net realized gains (0.34) (0.80) (0.97) (0.02)
Distributions in excess of net realized gains -- -- -- --
Total distributions (0.40) (0.93) (1.17) (0.37)
Net asset value, end of period $ 11.61 $ 10.10 $ 10.86 $ 10.60
------- ------- ------- -------

TOTAL RETURN 19.02% 1.61% 13.57% 5.77%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) $24,000 $19,949 $18,891 $17,855
Ratio of expenses to average net assets, before 2.25% 2.15% 2.45% 2.46%
Ratio of expenses to average net assets, net of 1.75% 1.75% 2.45% 2.46%
Ratio of expenses to average net assets, net of
reimbursement or waiver (0.16)% 0.13% (0.39)% (0.12)%
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver 0.35% 0.53% (0.39)% (0.12)%
Portfolio Turnover Rate 143.67% 122.56% 113.55% 137.72%
</TABLE>

- ----------
* Annualized.
# (before, or net of) reimbursement or waiver or redemption fee proceeds.
(c) 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.

52
<PAGE>
WORLDWIDE EMERGING MARKETS FUND

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.18 $ 11.49 $ 10.70 $ 11.47
Net investment income (loss) 0.12 0.01 -- 0.08
Net realized and unrealized gain (loss) from
investment operations (3.08) (1.32) 0.79 (0.76)
Total income (loss) from investment operations (2.96) (1.31) 0.79 (0.68)
Less distributions:
Distributions from net investment income (0.09) -- -- (0.08)
Distributions in excess of net investment income -- -- -- (0.01)
Distributions from net realized gains -- -- -- --
------- -------- -------- --------
Distributions in excess of net realized gains -- -- -- --
Total distributions (0.09) -- -- (0.09)
Net asset value, end of period $ 7.13 $ 10.18 $ 11.49 $ 10.70
------- -------- -------- --------

TOTAL RETURN (29.06)% (11.40)% 7.38% (5.93)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) $65,323 $137,686 $254,673 $265,544
Ratio of expenses to average net assets, before 1.85% 1.82% 1.76% 1.88%
Ratio of expenses to average net assets, net of 1.85% 1.82% 1.76% 1.88%
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver 1.14% 0.09% (0.01)% 0.70%
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver 1.14% 0.09% (0.01)% 0.70%
Portfolio Turnover Rate 107.19% 112.05% 86.26% 92.85%
</TABLE>

53
<PAGE>
SMALL CAP ASIA GROWTH FUND

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995(B)
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 7.06 $ 12.24 $ 9.76 $10.00
Net investment income (loss) -- (0.05) (0.05) 0.02
Net realized and unrealized gain (loss) from
investment operations (1.37) (5.13) 2.54 (0.24)
Total income (loss) from investment operations (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) --
Distributions from net realized gains -- -- -- --
Distributions in excess of net realized gains -- -- -- --
Total distributions -- -- (0.01) (0.02)
Net asset value, end of period $ 5.69 $ 7.06 $ 12.24 $ 9.76
------- ------- ------- ------

TOTAL RETURN (19.41)% (42.32)% 25.50% (4.39)%*

RATIOS/SUPPLEMENTAL DATA
Net asset, end of period (thousands) $18,278 $13,867 $23,796 $8,936
Ratio of expenses to average net assets, before
reimbursement or waiver 2.86% 2.30% 2.64% 3.51%*
Ratio of expenses to average net assets, net of
reimbursement or waiver 2.50% 2.30% 2.42% 1.75%*
Ratio of net investment income (loss)to average
net assets, before reimbursement or waiver (0.57)% (0.32)% (0.86)% (1.24)%*
Ratio of net investment income (loss)to average
net assets, before reimbursement or waiver (0.21)% (0.32)% (0.64)% 0.52%*
Portfolio Turnover Rate 193.48% 187.41% 176.49% 40.22%*
</TABLE>

54
<PAGE>
TROIKA DIALOG RUSSIA FUND

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996(D)
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.50 $ 11.24 $ 12.12
Net investment income (loss) 0.15 (0.01) (0.05)
Net realized and unrealized gain (loss) from
reimbursement or waiver (14.70) 7.57 (0.51)
Total income (loss) from investment operations (14.55) 7.56 (0.56)
Less distributions:
Distributions from net investment income (0.07) -- --
Distributions in excess of net investment income -- -- --
Distributions from net realized gains (0.24) (1.30) (0.32)
Distributions in excess of net realized gains -- -- --
Total distributions (0.31) (1.30) (0.32)
Net asset value, end of period $ 2.64 $ 17.50 $ 11.24
-------- --------- --------

TOTAL RETURN (82.99)% 67.50% (9.01)%*

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 19,147 $ 137,873 $ 13,846
Ratio of expenses to average net assets, before 2.64% 2.89%# 5.07%*#
Ratio of expenses to average net assets, net of 1.84% 1.85%# 2.65%*#
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver 0.57% (1.14)%# (3.69)%*#
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver 1.36% (0.11)%# (1.27)%*#
Portfolio Turnover Rate 65.76% 66.84% 115.55%
</TABLE>

55
<PAGE>
GNMA INCOME FUND

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 8.40 $ 8.12 $ 8.19 $ 7.60
Net investment income (loss) 0.48 0.51 0.53 0.58
Net realized and unrealized gain (loss)
from investment operation 0.13 0.29 (0.08) 0.59
Total income (loss) from investment operations 0.61 0.80 0.45 1.17
Less distributions:
Distributions from net investment income (0.48) (0.52) (0.52) (0.58)
Distributions in excess of net investment income -- -- -- --
Distributions from net realized gains -- -- -- --
Distributions in excess of net realized gains -- -- -- --
Total distributions (0.48) (0.52) (0.52) (0.58)
Net asset value, end of period $ 8.53 $ 8.40 $ 8.12 $ 8.19
--------- --------- --------- ---------

TOTAL RETURN 7.52% 10.20% 5.71% 15.91%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 273,591 $ 158,071 $ 133,777 $ 130,681
Ratio of expenses to average net assets, before 1.01% 1.01% 1.05% 1.01%
Ratio of expenses to average net assets, net of 1.01% 1.01% 1.05% 1.01%
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver 5.85% 6.28% 6.56% 7.10%
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver 5.85% 6.28% 6.56% 7.10%
Portfolio Turnover Rate 54.47% 134.28% 128.76% 30.69%
</TABLE>

56
<PAGE>
GLOBAL INCOME FUND

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.58 $ 11.22 $ 10.75 $ 9.80
Net investment income (loss) 0.90 1.04 1.01 0.96
Net realized and unrealized gain (loss) from (0.07) (0.50) 0.36 0.95
Total income (loss) from investment operations 0.83 0.54 1.37 1.91
Less distributions:
Distributions from net investment income (0.87) (0.91) (0.86) (0.96)
Distributions in excess of net investment -- -- -- --
Distributions from net realized gains (0.18) (0.27) (0.04) --
-------- -------- -------- --------
Distributions in excess of net realized gains -- -- -- --
Total distributions (1.05) (1.18) (0.90) (0.96)
Net asset value, end of period $ 10.36 $ 10.58 $ 11.22 $ 10.75
-------- -------- -------- --------

TOTAL RETURN 8.21% 5.00% 13.33% 20.10%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 36,407 $ 23,668 $ 29,110 $ 12,255
Ratio of expenses to average net assets, before
reimbursement or waiver 1.89% 2.17% 2.33% 3.07%
Ratio of expenses to average net assets,
net of reimbursement or waiver 1.50% 1.50% 1.50% 2.75%
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver 10.99% 8.99% 9.49% 9.48%
Ratio of net investment income (loss) to net
assets, before reimbursement or waiver 11.38% 9.66% 10.32% 9.80%
Portfolio Turnover Rate 45.25% 117.94% 71.83% 164.72%
</TABLE>

57
<PAGE>
GOLD FUND

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 3.24 $ 5.97 $ 6.24 $ 6.37
Net investment income (loss) -- -- 0.02 --
Net realized and unrealized gain (loss) from
investment operations (0.21) (2.52) 0.50 (0.12)
Total income (loss) from investment operations (0.21) (2.52) 0.52 (0.12)
Less distributions:
Distributions from net investment income -- (0.21) (0.79) (0.01)
Distributions in excess of net investment
income -- -- -- --
Distributions from net realized gains -- -- -- --
Distributions in excess of net realized gains -- -- -- --
Total distributions -- (0.21) (0.79) (0.01)
Net asset value, end of period $ 3.03 $ 3.24 $ 5.97 $ 6.24
------- -------- -------- --------

TOTAL RETURN (6.39)% (42.98)% 7.84% (1.89)%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) $50,841 $ 53,707 $109,287 $135,779
Ratio of expenses to average net assets, before
reimbursement or waiver 1.74% 1.65% 1.60% 1.70%
Ratio of expenses to average net assets, net of
reimbursement or waiver 1.74% 1.65% 1.60% 1.70%
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver 0.08% 0.17% (0.32)% 0.07%
Ratio of net investment income (loss) to average
net assets, net of reimbursement or waiver 0.08% 0.17% (0.32)% 0.07%
Portfolio Turnover Rate 28.93% 38.32% 31.04% 40.41%
</TABLE>

58
<PAGE>
SILVER FUND

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1999 1998(E) 1998(F) 1997(F) 1996(F) 1995(F)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 3.26 $ 3.95 $ 4.46 $ 4.00 $ 3.92
Net investment income (loss) (0.01) (0.02) (0.04) (0.03) (0.03)
Net realized and unrealized gain (loss) from
investment operations (0.52) (0.66) (0.43) 0.51 0.11
Total income (loss) from investment operations (0.53) (0.68) (0.47) 0.48 0.08
Less distributions:
Distributions from net investment income -- -- -- -- --
Distributions in excess of net investment
income -- (0.01) (0.04) (0.02)
Distributions from net realized gains -- -- -- -- --
Distributions in excess of net realized gains -- -- -- -- --
Total distributions -- (0.01) (0.04) (0.02) --
Net asset value, end of period $ 2.73 $ 3.26 $ 3.95 $ 4.46 $ 4.00
------- ------- ------- ------- -------

TOTAL RETURN (16.26)% (17.32)% (10.76)% 12.02% 2.04%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) $25,560 $34,921 $42,035 $73,945 $65,517
Ratio of expenses to average net assets,
before reimbursement or waiver 2.37%* 1.90% 1.96% 1.73% 1.82%
Ratio of expenses to average net assets, net of
reimbursement or waiver 2.37%* 1.90% 1.96% 1.73% 1.82%
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver (0.61)%* (0.54)% (0.78)% (0.72)% (0.83)%
Ratio of net investment income (loss) to net
assets, before reimbursement or waiver (0.61)%* (0.54)% (0.78)% (0.72)% (0.83)%
Portfolio Turnover Rate 5.68% 28.78% 18.76% 44.30% 44.22%
</TABLE>

* Annualized.
(e) Six month period ended December 31, 1998. The Fund changed its fiscal
year-end from June 30th to December 31st.
(f) Fiscal year-end June 30th.

59
<PAGE>
WHERE TO GO FOR MORE INFORMATION

You'll find more information about the Pilgrim Funds in our:

ANNUAL/SEMIANNUAL REPORTS

Include a discussion of recent market conditions and investment strategies that
significantly affected performance, the financial statements and the auditor's
reports (in annual report only).

STATEMENT OF ADDITIONAL INFORMATION

The SAI contains more detailed information about the Pilgrim Funds. The SAI is
legally part of this prospectus (it is incorporated by reference). A copy has
been filed with the Securities and Exchange Commission (SEC).

Please write or call for a free copy of the current Annual/semiannual reports,
the SAI or other Fund information, or to make shareholder inquiries:

The Pilgrim Funds 40 North Central Avenue, Suite 1200 Phoenix, AZ 85004

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:

Pilgrim Growth and Income Fund 811-0865
Pilgrim Global Corporate Leaders Fund 811-5113
Pilgrim International Fund 811-8172
Pilgrim Worldwide Emerging Markets Fund 811-1838
Pilgrim Global Technology Fund 811-5113
Pilgrim SmallCap Asia Growth Fund 811-7287
Pilgrim Troika Dialog Russia Fund 811-7587
Pilgrim GNMA Income Fund 811-2401
Pilgrim Global Income Fund 811-4675
Pilgrim Gold Fund 811-2881
Pilgrim Silver Fund 811-4111
<PAGE>
PILGRIM(SM)
- ---------------------------
FUNDS FOR SERIOUS INVESTORS

Prospectus
Class Q
July 26, 2000

U.S. EQUITY FUND
Pilgrim Growth and Income

INTERNATIONAL EQUITY FUND
Pilgrim International

INCOME FUNDS
Pilgrim GNMA Income
Pilgrim Global Income

These pages contain a description of each of our funds included in this
prospectus, including its objective, investment strategy and risks.

OBJECTIVE

You'll also find:

[GRAPHIC]

HOW THE FUND HAS PERFORMED. A chart that shows the fund's financial performance
for the past ten years (or since inception, if shorter).

INVESTMENT
STRATEGY

WHAT YOU PAY TO INVEST. A list of the fees and expenses you pay-- both directly
and indirectly-- when you invest in a fund.

[GRAPHIC]

RISKS

[GRAPHIC]

HOW THE FUND HAS PERFORMED

WHAT'S INSIDE
An introduction to the Pilgrim Funds 1
Funds at a Glance 2

U.S. EQUITY FUND
Pilgrim Growth and Income 3

INTERNATIONAL EQUITY FUNDS
Pilgrim International 5

INCOME FUNDS
Pilgrim GNMA Income 7
Pilgrim Global Income 9

What you pay to invest 11
Shareholder guide 13
Management of the Funds 19
Dividends, distributions and taxes 21
More information about risks 22
Financial highlights 25
Where to go for more information Backcover
<PAGE>
INTRODUCTION TO THE PILGRIM FUNDS

[GRAPHIC]

If you have any questions about the Pilgrim Funds, please call your financial
consultant or us at 1-800-992-0180.

U.S. EQUITY FUNDS

Our 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

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

Pilgrim offers both aggressive and conservative Income Funds.

They may suit you if you:

* want a regular stream of income.

Income Funds 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>
FUNDS AT A GLANCE

<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE MAIN INVESTMENTS MAIN RISKS

<S> <C> <C> <C> <C>
U.S. Equity Fund Growth and Income Fund Long-term capital Equity securities of large, Price volatitlity and
Adviser: Pilgrim appreciation, with ably managed, and other risks that
Investments, Inc. income as a secondary well-financed U.S. companies accompany an investment
objective securities. in equity

International International Fund Long-term growth of Equity securities and equity Price volatility and
Equity Funds Adviser: Pilgrim capital equivalents of companies other risks that
Investments, Inc. outside of the U.S. accompany an investment
[growth-oriented] foreign in
equities. Sensitive to
currency exchange rates,
international political and
economic conditions and other
risks that affect foreign
securities.

Income Funds GNMA Income Fund Adviser: High current income, Mortgage-backed GNMA Credit, interest rate,
Pilgrim Investments, Inc. consistent with liquidity Certificates that are prepayment and other
safety of principal and guaranteed as to the that accompany an investment risks
timely payment of principal in government bonds and
and interest by the U.S. mortgage related investments.
Government. Generally has less credit risk
than the other income funds.

Global Income Fund High current income, with Foreign and domestic high Credit, liquidity,
Adviser: Pilgrim capital appreciation as a yield, lower rated or unrated interest rate and other
Investments, Inc. secondary objective debt securities. risks that accompany an
lower-quality debt securities. investment in
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.
</TABLE>

2
<PAGE>
U.S. EQUITY FUNDS ADVISER
PILGRIM INVESTMENTS, INC.

PILGRIM GROWTH AND INCOME FUND

OBJECTIVE

* The Fund's principal investment objective is long-term capital
appreciation. Income is a secondary objective.

INVESTMENT STRATEGY

The Fund may invest the remaining 35% of its assets in foreign securities and
smaller capitalization companies.

RISKS

You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:

3
<PAGE>
HOW THE FUND HAS PERFORMED

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)

GROWTH & INCOME FUND
--------------------

90 %
---------
91 %
---------
92 %
---------
93 %
---------
94 %
---------
95 %
---------
96 %
---------
97 %
---------
98 %
---------
99 %
---------

- ----------
(1) These figures are as of 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.

Best and worst quarterly performance during this period:

[___ quarter 199__: _____%]
[___ quarter 199__: _____%]

The Fund's year-to-date total return as of June 30, 2000 was ____%.

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

CLASS A (3) S&P 500 INDEX (4)
----------- -----------------
One year, ended December 31, 1999 [_____]% [_____]%
Five years, ended December 31, 1999 [_____]% [_____]%
Ten years, ended December 31, 1999 [_____]% [_____]%

- ----------
(3) This table shows performance of the Class A shares of the Fund because
Class Q shares of the Fund were not offered as of December 31, 1999. 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.

4
<PAGE>
INTERNATIONAL EQUITY FUNDS ADVISER
PILGRIM INVESTMENTS, INC.

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

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. [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 stocks
that the Fund invests in.

5
<PAGE>
HOW THE FUND HAS PERFORMED

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)

INTERNATIONAL FUND
------------------

94 %
----------
95 %
----------
96 %
----------
97 %
----------
98 %
----------
99 %
----------

Best and worst quarterly performance during this period:

[___ quarter 199__: _____%]
[___ quarter 199__: _____%]

The Fund's year-to-date total return as of June 30, 2000 was ____%.

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

CLASS A (3) MSCI EAFE INDEX (4)
----------- -------------------

One year, ended December 31, 1999 [_____]% [_____]%
Five years, ended December 31, 1999 [_____]% [_____]%
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 were not offered as of December 31, 1999. See
footnote (2) to the bar chart above.
(4) The Morgan Stanley Capital International Europe Australasia 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.
(5) Class A commenced operations on ______________.

6
<PAGE>
INCOME FUNDS ADVISER
PILGRIM INVESTMENTS, INC.

PILGRIM GNMA INCOME FUND

OBJECTIVE

* 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 mortgage-backed GNMA ("Ginnie Mae") Certificates that are
guaranteed as to the timely payment of principal and interest by the United
States Government.

INVESTMENT STRATEGY

RISKS

You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:

7
<PAGE>
HOW THE FUND HAS PERFORMED

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)

GNMA INCOME FUND
----------------

90 %
----------
91 %
----------
92 %
----------
93 %
----------
94 %
----------
95 %
----------
96 %
----------
97 %
----------
98 %
----------
99 %
----------

BEST AND WORST QUARTERLY PERFORMANCE DURING THIS PERIOD:

[___ quarter 199__: _____%]
[___ quarter 199__: _____%]

The Fund's year-to-date total return as of June 30, 2000 was ____%.

AVERAGE ANNUAL TOTAL RETURNS
LEHMAN BROTHERS
MORTGAGE-BACKED
CLASS A (3) SECURITIES INDEX (4)
----------- --------------------

One year, ended December 31, 1999 [_____]% [_____]%
Five years, ended December 31, 1999 [_____]% [_____]%
Ten years, ended December 31, 1999 [_____]% [_____]%

8
<PAGE>
INCOME FUNDS ADVISER
PILGRIM INVESTMENTS, INC.

PILGRIM GLOBAL INCOME FUND

OBJECTIVE

INVESTMENT STRATEGY

The Fund invests in a variety of foreign and domestic high yield, lower rated or
unrated debt securities.

RISKS

You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:

RISKS OF FOREIGN INVESTING -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate 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.

9
<PAGE>
HOW THE FUND HAS PERFORMED

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)

GLOBAL INCOME FUND
------------------

90 %
--------
91 %
--------
92 %
--------
93 %
--------
94 %
--------
95 %
--------
96 %
--------
97 %
--------
98 %
--------
99 %
--------

BEST AND WORST QUARTERLY PERFORMANCE DURING THIS PERIOD:

[___ quarter 199__: _____%]
[___ quarter 199__: _____%]

The Fund's year-to-date total return as of June 30, 2000 was ____%.

AVERAGE ANNUAL TOTAL RETURNS
LEHMAN BROTHERS
GLOBAL BOND
CLASS A (4) INDEX (5)
----------- ---------
One year, ended December 31, 1999 [_____]% [_____]%
Five years, ended December 31, 1999 [_____]% [_____]%
Ten years, ended December 31, 1999 [_____]% [_____]%

- ----------
(4) This table shows performance of the Class A shares of the Fund because
Class Q shares of the Fund were not offered as of December 31, 1999. See
footnote (2) to the bar chart above.
(5) The Lehman Brothers Global Bond Index is an unmanaged index that measures
[add description of index].

10
<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 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>
DISTRIBUTION TOTAL
AND SERVICE FUND
MANAGEMENT (12B-1) OTHER OPERATING FEE WAIVER NET
FUND FEE FEES EXPENSES(2) EXPENSES BY ADVISER(3) EXPENSES
- ---- --- ---- ----------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth and Income % 0.63 0.25 -- -- -- --
International % 1.00 0.25 -- -- -- --
GNMA Income % 0.57 0.25 -- -- -- --
Global Income % 1.00 0.25 -- -- -- --
</TABLE>

- ----------
(1) These tables show the estimated operating expenses for Class Q shares 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 and fee waivers to which the adviser has
agreed.
(2) Because Class Q shares are new for the Funds, the expenses for each Fund
are estimated based on Class A expenses of the Funds.
(3) Pilgrim Investments has entered into expense limitation agreements with
each Fund [CONFIRM] under which it will limit expenses of the Fund,
excluding interest, taxes, brokerage and extraordinary expenses, subject to
possible reimbursement to Pilgrim Investments within [three] years.

11
<PAGE>
WHAT YOU PAY TO INVEST

EXAMPLES

CLASS Q

FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- ------ ------- ------- --------
Growth and Income
International
GNMA Income
Global Income

12
<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, T and I 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 Your A financial consultant with an Visit or consult a financial
Financial Consultant authorized firm can help you consultant.
establish and maintain your
account.

By Mail Visit or consult with a Fill out the Account Additions
financial consultant. Make form included on the bottom of
your check payable to the your account statement along
Pilgrim Funds and mail it, with your check payable to the
along with a completed Fund and mail them to the
Application. Please indicate address on the account
your financial consultant on statement. Remember to write
the New Account Application your account number on the
check.
</TABLE>

13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
By Wire Call the Pilgrim Operations Wire the funds in the same
Department at (800) 336-3436 manner described under
to obtain an account number "Initial Investment."
and indicate your financial
consultant on the account.
Instruct your bank to wire
funds to the Fund in the care
of: Investors Fiduciary Trust
Co. ABA #101003621 Kansas
City, MO credit to:
___________ (the Fund) A/C
#751-8315; for further credit
to: _________________
Shareholder A/C
#_________________ (A/C # you
received over the telephone)
Shareholder Name:

---------------------------------
(Your Name Here) After wiring
funds you must complete the
Account Application and send
it to: Pilgrim Funds P.O. Box
219368 Kansas City, MO 64121-6368
</TABLE>

14
<PAGE>
SHAREHOLDER GUIDE -- HOW TO REDEEM SHARES

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.

o Your account must have a current value of at least $250,000. o Minimum
withdrawal amount is $1,000. o 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

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.

15
<PAGE>
By Telephone -- You may redeem shares by telephone on all accounts
Expedited Redemption other than retirement accounts, unless you check
the box on the Account Application which signifies
that you do not wish to use telephone redemptions.
To redeem by telephone, call the Shareholder
Servicing Agent at (800) 992-0180.

Receiving Proceeds By Check:

You may have redemption proceeds (up to a maximum
of $100,000) mailed to an address which has been
on record with Pilgrim Funds for at least 30 days.

Receiving Proceeds By Wire:

You may have redemption proceeds (subject to a
minimum of $5,000) wired to your pre-designated
bank account. You will not be able to receive
redemption proceeds by wire unless you check the
box on the Account Application which signifies
that you wish to receive redemption proceeds by
wire and attach a voided check. Under normal
circumstances, proceeds will be transmitted to
your bank on the business day following receipt of
your instructions, provided redemptions may be
made. In the event that share certificates have
been issued, you may not request a wire redemption
by telephone.

16
<PAGE>
SHAREHOLDER GUIDE -- TRANSACTION POLICIES

NET ASSET VALUE

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

TELEPHONE ORDERS

17
<PAGE>
SHAREHOLDER GUIDE -- TRANSACTION POLICIES

EXCHANGES

SYSTEMATIC EXCHANGE PRIVILEGE

SMALL ACCOUNTS

18
<PAGE>
MANAGEMENT OF THE FUNDS ADVISER

Pilgrim's principal address is 40 North Central Avenue, Suite 1200, Phoenix,
Arizona 85004.

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 advisory fee paid by each Fund
for the most recent fiscal year as a percentage of that Fund's average daily net
assets:

FUND ADVISORY FEE
---- ------------
Growth and Income
International
GNMA Income
Global Income

19
<PAGE>
Pilgrim Directly Manages the Portfolios of the Following Funds:

PILGRIM GROWTH AND INCOME FUND

PILGRIM INTERNATIONAL FUND

The following individuals share responsibility for the day-to-day management of
the International Fund:

RICHARD T. SALER. Mr. Saler is the lead manager of an investment management team
that manages the Pilgrim International Fund. He is a member of an investment
management team for Pilgrim Global Corporate Leaders Fund. Mr. Saler is Senior
Vice President, Director of International Investment Strategy of LMC. Mr. Saler
is responsible for international investment analysis and portfolio management at
LMC. He has thirteen years of investment experience. Mr. Saler has focused on
international markets since first joining LMC in 1986. In 1991 he was a
strategist with Nomura Securities and rejoined LMC in 1992. Mr. Saler graduated
from New York University with a B.S. Degree in Marketing and from New York
University's Graduate School of Business Administration with an M.B.A. in
Finance.

PHILIP A. SCHWARTZ, CFA. Mr. Schwartz is also a member of an investment
management team that manages the Pilgrim International Fund and Pilgrim Global
Corporate Leaders Fund. Mr. Schwartz is a Vice President at LMC, a Chartered
Financial Analyst and a member of the New York Society of Security Analysts. He
is responsible for international investment analysis and portfolio management at
LMC, and has twelve years of investment experience. Prior to joining LMC in
1993, Mr. Schwartz was Vice President of European Research Sales with Cheuvreux
De Virieu in Paris and New York, serving the institutional market. Prior to
Cheuvreux, he was affiliated with Olde and Co. and Kidder, Peabody as a
stockbroker. Mr. Schwartz earned his B.A. and M.A. Degrees from Boston
University.

ALAN H. WAPNICK. Please see biography under Pilgrim Growth and Income Fund.

PILGRIM GNMA INCOME FUND

PILGRIM GLOBAL INCOME FUND

DENIS P. JAMISON, CFA. Please see biography under Pilgrim GNMA Income Fund.

20
<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:

ANNUALLY (1) SEMI-ANNUALLY(1) QUARTERLY(2) MONTHLY(3)
- ------------ ---------------- ------------ ----------

Growth and Income
International
GNMA Income
Global Income

Each Fund distributes capital gains, if any, annually.

DIVIDEND REINVESTMENT

TAXES

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.

21
<PAGE>
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.

MORE INFORMATION ABOUT RISKS

PRINCIPAL RISKS

22
<PAGE>
MORE INFORMATION ABOUT RISKS

23
<PAGE>
MORE INFORMATION ABOUT RISKS

24
<PAGE>
OTHER RISKS

PERCENTAGE AND RATING LIMITATIONS. Unless otherwise stated, the percentage
limitations in this prospectus apply at the time of investment.

FINANCIAL HIGHLIGHTS

25
<PAGE>
U.S. EQUITY FUND

GROWTH AND INCOME FUND

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 20.27 $ 18.56 $ 15.71 $ 14.36 $ 16.16
Net investment income (loss) -- 0.05 0.07 0.22 0.17
Net realized and unrealized gain (loss) from
investment operations 4.30 5.46 4.08 3.00 (0.68)
Total income (loss) from investment operations
Less distributions: 4.30 5.51 4.15 3.22 (0.51)
Distributions from net investment income -- (0.07) (0.13) (0.22) (0.16)
Distributions in excess of net investment
income -- -- -- -- --
Distributions from net realized gains (2.66) (3.73) (1.17) (1.65) (0.91)
Distributions in excess of net realized gains (2.66) (3.80) (1.30) (1.87) (1.29)
Total distributions $ 21.91 $ 20.27 $ 18.56 $ 15.71 $ 14.36
--------- --------- --------- --------- ---------
Net asset value, end of period 21.42% 30.36% 26.46% 22.57% (3.11)%

TOTAL RETURN $ 245,790 $ 228,037 $ 200,309 $ 138,901 $ 124,829

RATIOS/SUPPLEMENTAL DATA 1.16% 1.17% 1.13% 1.09% 1.15%
Net assets, end of period (thousands) 1.16% 1.17% 1.13% 1.09% 1.15%
Ratio of expenses to average net assets,
before reimbursement or waiver 0.06% 0.21% 0.43% 1.38% 1.06%
Ratio of expenses to average net assets, net
of reimbursement or waiver 0.06% 0.21% 0.43% 1.38% 1.06%
Ratio of net investment income (loss) to
average net assets, before reimbursement or
waiver 63.20% 88.15% 101.12% 159.94% 63.04%
Ratio of net investment income (loss) to
average net assets, net of reimbursement or
waiver
Portfolio Turnover Rate
</TABLE>

26
<PAGE>
INTERNATIONAL FUND

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.10 $ 10.86 $ 10.60 $ 10.37
Net investment income (loss) 0.17 0.07 (0.02) (0.01)
Net realized and unrealized gain (loss) from
investment operations 1.74 0.10 1.45 0.61
Total income (loss) from investment operations 1.91 0.17 1.43 0.60
Less distributions:
Distributions from net investment income (0.06) (0.13) (0.20) --
Distributions in excess of net investment income -- -- -- (0.35)
Distributions from net realized gains (0.34) (0.80) (0.97) (0.02)
Distributions in excess of net realized gains -- -- -- --
Total distributions (0.40) (0.93) (1.17) (0.37)
Net asset value, end of period $ 11.61 $ 10.10 $ 10.86 $ 10.60
-------- -------- -------- --------

TOTAL RETURN 19.02% 1.61% 13.57% 5.77%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 24,000 $ 19,949 $ 18,891 $ 17,855
Ratio of expenses to average net assets, before
reimbursement or waiver 2.25% 2.15% 2.45% 2.46%
Ratio of expenses to average net assets, net of
reimbursement or waiver 1.75% 1.75% 2.45% 2.46%
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver (0.16)% 0.13% (0.39)% (0.12)%
Ratio of net investment income (loss) to average
net assets, net of reimbursement or waiver 0.35% 0.53% (0.39)% (0.12)%
Portfolio Turnover Rate 143.67% 122.56% 113.55% 137.72%
</TABLE>

27
<PAGE>
INCOME FUNDS

GNMA INCOME FUND

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 8.40 $ 8.12 $ 8.19 $ 7.60
Net investment income (loss) 0.48 0.51 0.53 0.58
Net realized and unrealized gain (loss) from
investment operations 0.13 0.29 (0.08) 0.59
Total income (loss) from investment operations 0.61 0.80 0.45 1.17
Less distributions:
Distributions from net investment income (0.48) (0.52) (0.52) (0.58)
Distributions in excess of net investment income -- -- -- --
Distributions from net realized gains -- -- -- --
Distributions in excess of net realized gains -- -- -- --
Total distributions (0.48) (0.52) (0.52) (0.58)
Net asset value, end of period $ 8.53 $ 8.40 $ 8.12 $ 8.19
--------- --------- --------- ---------

TOTAL RETURN 7.52% 10.20% 5.71% 15.91%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 273,591 $ 158,071 $ 133,777 $ 130,681
Ratio of expenses to average net assets, before
reimbursement or waiver 1.01% 1.01% 1.05% 1.01%
Ratio of expenses to average net assets, net of
reimbursement or waiver 1.01% 1.01% 1.05% 1.01%
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver 5.85% 6.28% 6.56% 7.10%
Ratio of net investment income (loss) to average
net assets, net of reimbursement or waiver 5.85% 6.28% 6.56% 7.10%
Portfolio Turnover Rate 54.47% 134.28% 128.76% 30.69%
</TABLE>

28
<PAGE>
GLOBAL INCOME FUND

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.58 $ 11.22 $ 10.75 $ 9.80
Net investment income (loss) 0.90 1.04 1.01 0.96
Net realized and unrealized gain (loss) from
investment operations (0.07) (0.50) 0.36 0.95
Total income (loss) from investment operations 0.83 0.54 1.37 1.91
Less distributions:
Distributions from net investment income (0.87) (0.91) (0.86) (0.96)
Distributions in excess of net investment
income -- -- -- --
Distributions from net realized gains (0.18) (0.27) (0.04) --
-------- -------- -------- --------
Distributions in excess of net realized gains -- -- -- --
Total distributions (1.05) (1.18) (0.90) (0.96)
Net asset value, end of period $ 10.36 $ 10.58 $ 11.22 $ 10.75
-------- -------- -------- --------

TOTAL RETURN 8.21% 5.00% 13.33% 20.10%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 36,407 $ 23,668 $ 29,110 $ 12,255
Ratio of expenses to average net assets, before
reimbursement or waiver 1.89% 2.17% 2.33% 3.07%
Ratio of expenses to average net assets, net of
reimbursement or waiver 1.50% 1.50% 1.50% 2.75%
Ratio of net investment income (loss) to
average net assets, before reimbursement or
waiver 10.99% 8.99% 9.49% 9.48%
Ratio of net investment income (loss) to
average net assets, net of reimbursement or
waiver 11.38% 9.66% 10.32% 9.80%
Portfolio Turnover Rate 45.25% 117.94% 71.83% 164.72%
</TABLE>

29
<PAGE>
WHERE TO GO FOR MORE INFORMATION

You'll find more information about the Pilgrim Funds in our:

ANNUAL/SEMIANNUAL REPORTS

Include a discussion of recent market conditions and investment strategies that
significantly affected performance, the financial statements and the auditor's
reports (in annual report only).

STATEMENT OF ADDITIONAL INFORMATION

Please write or call for a free copy of the current Annual/semiannual reports,
the SAI or other Fund information, or to make shareholder inquiries:

The Pilgrim Funds 40 North Central Avenue, Suite 1200 Phoenix, AZ 85004

1-800-992-0180

Or visit our website at www.pilgrimfunds.com.

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:

Pilgrim Growth and Income Fund 811-0865
Pilgrim International Fund 811-8172
Pilgrim GNMA Income Fund 811-2401
Pilgrim Global Income Fund 811-4675
<PAGE>
PILGRIM INTERNATIONAL FUND, INC.

40 NORTH CENTRAL AVENUE, SUITE 1200
PHOENIX, ARIZONA 85004
(800) 992-0180

STATEMENT OF ADDITIONAL INFORMATION

JULY 26, 2000

A Prospectus for the Pilgrim International Fund, Inc. (the "Fund"), dated July
26, 2000, which provides the basic information you should know before investing
in the Fund, may be obtained without charge from the Fund or the Fund's
Principal Underwriter, Pilgrim Securities, Inc. ("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
Prospectus, dated July 26, 2000, which has been filed with the Securities and
Exchange Commission ("SEC"). In addition, the financial statements from the
Fund's December 31, 1999 Annual Report are incorporated herein by reference.
Copies of the Fund's Prospectus and Annual or Semi-Annual Report may be obtained
without charge by contacting the Pilgrim Funds at the address and phone number
written above.

TABLE OF CONTENTS

HISTORY OF THE FUND.........................................................

MANAGEMENT OF THE FUND......................................................

ADMINISTRATOR...............................................................

EXPENSE LIMITATION AGREEMENT................................................

RULE 12b-1 PLAN.............................................................

INVESTMENT STRATEGIES AND RISKS OF THE FUND.................................

INVESTMENT RESTRICTIONS.....................................................

PORTFOLIO TRANSACTIONS......................................................

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................

DETERMINATION OF SHARE PRICE................................................

SHAREHOLDER INFORMATION.....................................................

SHAREHOLDER SERVICES AND PRIVILEGES.........................................

DISTRIBUTIONS...............................................................

TAX CONSIDERATIONS..........................................................

CALCULATION OF PERFORMANCE DATA.............................................

GENERAL INFORMATION.........................................................

FINANCIAL STATEMENTS........................................................
<PAGE>
HISTORY OF THE FUND

Pilgrim International Fund, Inc. (the "Fund") is a corporation organized under
the laws of the State of Maryland on November 23, 1993 under the name of
Lexington International Fund, Inc. The Fund is an open-end, diversified
management investment company. The name of the Fund was changed on July 26, 2000
from Lexington International Fund to Pilgrim International Fund.

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

The Fund is managed by its Directors ("Board of Directors"). The Directors and
Officers of the Fund are listed below. An asterisk (*) has been placed next to
the name of each Director who is an "interested person," as that term is defined
in the Investment Company Act of 1940 Act ("1940 Act"), by virtue of that
person's affiliation with the Fund, or the Fund's Adviser ("Pilgrim Investments"
or the "Adviser"). Unless otherwise noted, the mailing address of the Directors
and Officers is 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. The
Board of Directors governs the Fund and is responsible for protecting the
interests of shareholders. The Directors are experienced executives who oversee
the Fund's activities, review contractual arrangements with companies that
provide services to the Fund, and review the Fund's performance.

Set forth below is information regarding the Directors of the Fund.

MARY A. BALDWIN, PH.D. (Age 60) Director. 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 69) 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.

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.

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*MARK LIPSON. (Age 51) Director. Formerly Chairman and Director of Pilgrim
Advisors, Inc. Director of Pilgrim Funding, Inc. Mr. Lipson was formerly
Chairman of Pilgrim Capital Corporation and Northstar Distributors, Inc.;
Director of Northstar Administrators Corporation; President of Pilgrim
Funding, Inc.; Director, President and Chief Executive Officer of National
Securities & Research Corporation; and Director/Trustee and President of
the National Affiliated Investment Companies and certain of National's
subsidiaries (prior to August 1993). Mr. Lipson 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 60) 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 76) 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, Pilgrim
Investments, Inc. (since December 1994); 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 Holdings Corporation
(Pilgrim Capital Corporation merged into this subsidiary October 29, 1999)
(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 60) 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); Director of Northstar Investment Management

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Corporation and affiliates (since October 1993); Chairman and
Director/Trustee of the Northstar affiliated investment companies (since
October 1993). Mr. Turner was formerly 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.

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.

In addition to the above listed Directors, the following individuals serve as
Advisory Board Members:

S.M.S. CHADA. (Age 61) Secretary, Ministry of External Affairs, New Delhi,
India; Head of Foreign Service Institute, New Delhi, India; Special Envoy
of the Government of India; Director, Special Unit for Technical
Cooperation among Developing countries, United Nations Development Program,
New York.

ANDREW M. MCCOSH. (Age 58) Professor of the Organisation of Industry and
Commerce, Department of Business Studies, The University of Edinburgh,
Scotland.

The Fund pays each Director who is not an interested person a pro rata share, as
described below, of (i) an annual retainer of $20,000; (ii) $5,000 per quarterly
Board meeting; (iii) $500 per committee meeting; (iv) $500 per special or
telephonic meeting; and (v) out-of-pocket expenses. The pro rata share paid by
the Fund is based on the Fund's average net assets as a percentage of the
average net assets of all the funds managed by the Adviser for which the
Directors serve in common as Directors. The Fund pays each Advisory Board Member
a fee of $15,000 annually, plus reasonable travel expenses.

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COMPENSATION OF DIRECTORS

The following table sets forth information regarding compensation of Directors
by the Fund for the fiscal year ended December 31, 1999. Officers of the Fund
and Directors who are interested persons of the Fund do not receive any
compensation from the Fund.

COMPENSATION TABLE

Total Compensation Number of
Aggregate From Fund and Directorships in
Name of Director Compensation Fund Complex Fund Complex
- ---------------- ------------ ------------ ------------
S.M.S. Chadha $112 $24,006 15
Robert M. DeMichele $ 0 $ 0 15
Beverly C. Duer $112 $29,656 15
Barbara R. Evans $ 0 $ 0 15
Richard M. Hisey $ 0 $ 0 8
Jerard F. Maher $112 $22,976 15
Andrew M. McCosh $112 $24,006 15
Donald B. Miller $112 $24,006 15
John G. Preston $112 $24,006 15
Allen H. Stowe $112 $12,712 8

OFFICERS

Unless otherwise noted, the mailing address of the officers is 40 North Central
Avenue, Suite 1200, Phoenix, Arizona 85004. The following individuals serve as
officers for the Fund:

James R. Reis, Executive Vice President and Assistant Secretary. (Age 42)
Director, Vice Chairman (since December 1994), Executive Vice President
(since April 1995), and Director of Structured Finance (since April 1998),
Pilgrim Group, Inc. and Pilgrim Investments; Director (since December 1994)
and Vice Chairman (since November 1995) of Pilgrim Securities; Executive
Vice President, Assistant Secretary and Chief Credit Officer of Pilgrim
Prime Rate Trust; Executive Vice President and Assistant Secretary of each
of the other Pilgrim Funds. Chief Financial Officer (since December 1993),
Vice Chairman and Assistant Secretary (since April 1993) and former
President (May 1991 - December 1993), Pilgrim Capital (formerly Express
America Holdings Corporation). Presently serves or has served as an officer
or director of other affiliates of Pilgrim Capital.

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Stanley D. Vyner, Executive Vice President. (Age 49) President and Chief
Executive Officer (since August 1996), Pilgrim Investments; Executive Vice
President of most of the other Pilgrim Funds (since July 1996). Formerly
Chief Executive Officer (November 1993 - December 1995) HSBC Asset
Management Americas, Inc., and Chief Executive Officer, and Actuary (May
1986 - October 1993) HSBC Life Assurance Co.

James M. Hennessy, Executive Vice President and Secretary. (Age 50)
Executive Vice President and Secretary (since April 1998), Pilgrim Capital
(formerly Express America Holdings Corporation), Pilgrim Group, Pilgrim
Securities and Pilgrim Investments; Executive Vice President and Secretary
of each of the other Pilgrim Funds. Formerly Senior Vice President, Pilgrim
Capital (April 1995 - April 1998); Senior Vice President, Express America
Mortgage Corporation (June 1992 - August 1994) and President, Beverly Hills
Securities Corp. (January 1990 - June 1992).

Michael J. Roland, Senior Vice President and Principal Financial Officer.
(Age 41) 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 36)
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 32) 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).

CODE OF ETHICS

The Fund has adopted a Code of Ethics governing personal trading activities of
all Directors and officers of the Fund 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 Fund or obtain information pertaining to such purchase or
sale. The Code is intended to prohibit fraud against the 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 Fund's Compliance Officer or her designee and to
report all transactions on a regular basis.

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PRINCIPAL SHAREHOLDERS

As of ____, 2000, the Directors and Officers as a group owned less than 1% of
any class of the 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 Class A shares of the Fund, except as follows. As of ____, 2000,
there were no outstanding B, C, or Q shares of the Fund.

[INSERT 5% INFORMATION]

ADVISER

The Adviser for the Fund is Pilgrim Investments. Prior to July 26, 2000,
Lexington Management Corporation ("LMC") served as investment adviser to the
Fund. On July 26, 2000, Lexington Global Asset Managers, Inc, the indirect
parent of LMC, was acquired by ReliaStar Financial Corp., the indirect parent of
Pilgrim Investments, Inc.

The Adviser, subject to the authority of the Directors of the Fund, serves as
investment adviser to the Fund pursuant to an Investment Management Agreement
between the Adviser and the Fund. The Investment Management Agreement requires
the Adviser to oversee the provision of all investment advisory and portfolio
management services for the Fund.

The Investment Management Agreement requires the Adviser to provide, subject to
the supervision of the Board of Directors, 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 Adviser also provides investment research and analysis. The
Investment Management Agreement (the "Advisory Agreement") provides that the
Adviser is not subject to liability to the Fund for any act or omission in the
course of, or connected with, rendering services under the Advisory Agreement,
except by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties under the Advisory Agreement.

After an initial two year term, the Advisory 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 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 who are not "interested persons" (as
defined in the 1940 Act) of the Adviser by vote cast in person at a meeting
called for the purpose of voting on such approval. The Advisory Agreement is
terminable without penalty with not less than 60 days' notice by the Board of
Directors 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
Adviser. The Advisory Agreement will terminate automatically in the event of its
"assignment" (as defined in the 1940 Act).

Pilgrim Investments is registered as an investment adviser with the SEC and
serves as an investment adviser to registered investment companies (or series
thereof), as well as privately managed accounts. As of June ____, 2000, the
Adviser had assets under management of approximately $___ billion. Pilgrim
Investments, Inc. is a wholly-owned subsidiary of ReliaStar Financial Corp.
(NYSE:RLR). Through its subsidiaries, ReliaStar Financial Corp. 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.

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<PAGE>
The Adviser bears the expense of providing its services. For its services, the
Fund pays the Adviser a monthly fee in arrears equal to a percentage of the
Fund's average daily net assets during the month. The annual investment
management fee for the Fund is ___% of the Fund's average net assets.

The total amount of advisory fees paid by the Fund for fiscal years ended
December 31, 1997, 1998, and 1999 were $_____, ______, and _____, respectively.

ADMINISTRATOR

Pilgrim Group, Inc. serves as Administrator for the Fund, pursuant to an
Administrative Services Agreement. Subject to the supervision of the Board of
Directors, the Administrator provides the overall business management and
administrative services necessary to proper conduct the Fund's business, except
for those services performed by the Adviser under the Advisory Agreement, the
custodian for the Fund under the Custodian Agreement, the transfer agent for the
Fund under the Transfer Agency Agreement, and such other service providers as
may be retained by the Fund from time to time. The Administrator acts as liaison
among these service providers to the Fund. The Administrator is also responsible
for ensuring that the Fund operate in compliance with applicable legal
requirements and for monitoring the Adviser for compliance with requirements
under applicable law and with the investment policies and restrictions of the
Fund. The Administrator is an affiliate of the Adviser. For its services under
the Administration Services Agreement, Pilgrim Group, Inc. receives an annual
fee equal to 0.10% of the Fund's average daily net assets.

Prior to July 26, 2000, LMC acted as administrator to the Fund and performed
certain administrative and internal accounting services, including but not
limited to, maintaining general ledger accounts, regulatory compliance,
preparation of financial information for semiannual and annual reports,
preparing registration statements, calculating net asset values, shareholder
communications and supervision of the custodian and transfer agent and provides
facilities for such services. The Fund reimbursed LMC for its actual cost in
providing such services, facilities and expenses.

The total amounts of administrative fees paid by the Fund for the fiscal years
ended December 31, 1997, 1998, and 1999 were $______, ______, and ______,
respectively.

EXPENSE LIMITATION AGREEMENTS

The Adviser has entered into an expense limitation agreement with the Fund,
pursuant to which the Adviser has agreed to waive or limit its fees. In
connection with this agreement and certain U.S. tax requirements, the Adviser
will 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 the Fund's business, and expenses of any counsel or other
persons or services retained by the Fund's directors who are not "interested
persons" (as defined in the 1940 Act) of the Adviser) do not exceed ___% for
Class A, ___% for Class B, ___% for Class C and ____ % for Class Q.

The Fund will at a later date reimburse the Adviser for management fees waived
and other expenses assumed by the Adviser during the previous 36 months, but
only if, after such reimbursement, the Fund's expense ratio does not exceed the

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<PAGE>
percentage described above. The Adviser will only be reimbursed for fees waived
or expenses assumed after the effective date of the expense limitation
agreements.

The expense limitation agreement provides that these expense limitations shall
continue until _____, 2001. Thereafter, the agreement will automatically renew
for one-year terms unless the Adviser 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 Advisory Agreement, or it may be terminated by the Fund, without payment of
any penalty, upon ninety (90) days' prior written notice to the Adviser at its
principal place of business.

DISTRIBUTOR

Shares of the Fund are distributed by Pilgrim Securities pursuant to a
Distribution Agreement between the Fund and the Distributor. The Distribution
Agreement requires the Distributor to use its best efforts on a continuing basis
to solicit purchases of shares of the Fund. The Fund and the Distributor have
agreed to indemnify each other against certain liabilities. At the discretion of
the Distributor, all sales charges may at times be re-allowed to an authorized
dealer ("Authorized Dealer"). If 90% or more of the sales commission is
re-allowed, such Authorized Dealer may be deemed to be an "underwriter" as that
term is defined under the Securities Act of 1933, as amended. The 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 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
or a majority of the outstanding voting securities of the Fund. See the
Prospectus for information on how to purchase and sell shares of the Fund, and
the charges and expenses associated with an investment. The sales charge
retained by the Distributor and the commissions re-allowed to selling dealers
are not an expense of the Fund and have no effect on the net asset value of the
Fund. The Distributor, like the Adviser, is a subsidiary of ReliaStar. Prior to
July 26, 2000, the distributor for the Fund was Lexington Funds Distributor,
Inc. ("LFD").

RULE 12b-1 PLAN

The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940
Act ("Rule 12b-1 Plan") applicable to each class of shares of the Fund. The Fund
intends 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 Plan, the Distributor may be entitled to payment each month
in connection with the offering, sale, and shareholder servicing of 0.25% for
Class A, 1.00 % for Class B, 1.00% for Class C and 0.25% for Class Q shares.

These fees may be used to cover the expenses of the Distributor primarily
intended to result in the sale of Class A, Class B, Class C and Class Q shares
of the Fund, including payments to dealers for selling shares of the Fund and
for servicing shareholders of these classes of the Fund. Activities for which
these fees may be used include: promotional activities; preparation and
distribution of advertising materials and sales literature; expenses of
organizing and conducting sales seminars; personnel costs and overhead of the
Distributor; printing of prospectuses and statements of additional information
(and supplements thereto) and reports for other than existing shareholders;
payments to dealers and others that provide shareholder services; interest on
accrued distribution expenses; and costs of administering the Rule 12b-1 Plan.
No more than 0.75% per annum of the Fund's average net assets may be used to
finance distribution expenses, exclusive of shareholder servicing payments, and

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no Authorized Dealer may receive shareholder servicing payments in excess of
0.25% per annum of the Fund's average net assets held by the Authorized Dealer's
clients or customers.

Under the Rule 12b-1 Plan, 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 and 1.00% for
Class C. Rights to these ongoing payments begin to accrue in the 13th month
following a purchase of Class A, B or C shares and in the 1st month following a
purchase of Class Q shares. With respect to each 12b-1 Plan, the Distributor
shall receive payment without regard to actual distribution expenses it incurs.
In the event a Rule 12b-1 Plan is terminated in accordance with its terms, the
obligations of the 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 Plan
also recognizes that the Adviser 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 Fund's shares and other funds managed by the
Adviser. In some instances, additional compensation or promotional incentives
may be offered to dealers. Such compensation and incentives may include, but are
not limited to, cash, merchandise, trips and financial assistance to dealers in
connection with pre-approved conferences or seminars, sales or training programs
for invited sales personnel, payment for travel expenses (including meals and
lodging) incurred by sales personnel and members of their families, or other
invited guests, to various locations for such seminars or training programs,
seminars for the public, advertising and sales campaigns regarding the Fund or
other funds managed by the Adviser 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 Fund 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 Fund's
shares sold by the dealer during a particular period, and (2) 0.10% of the value
of the Fund's shares held by the dealer's customers for more than one year,
calculated on an annual basis.

The Rule 12b-1 Plan has been approved by the Board of Directors of the Fund,
including all of the Directors who are not interested persons of the Fund as
defined in the 1940 Act. The Rule 12b-1 Plan must be renewed annually by the
Board of Directors, including a majority of the Directors who are not interested
persons of the Fund 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
be committed to the Directors who are not interested persons. The Rule 12b-1
Plan and any distribution or service agreement may be terminated as to the Fund
at any time, without any penalty, by such Directors 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.

In approving the Rule 12b-1 Plan, the Board of Directors has determined that
differing distribution arrangements in connection with the sale of new shares of
the Fund is necessary and appropriate in order to meet the needs of different
potential investors. Therefore, the Board of Directors, including those
Directors who are not interested persons of the Fund, 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 Plan as tailored to
each class of the Fund, will benefit the Fund and its respective shareholders.

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<PAGE>
The 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 the 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 who are not interested persons of the Fund, cast in
person at a meeting called for the purpose of voting on any such amendment. The
Distributor is required to report in writing to the Board of Directors at least
quarterly on the monies reimbursed to it under the 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 the fiscal year ended December 31, 1999, the Fund had a reimbursement
style 12b-1 Plan, which provided that the Fund pay distribution fees including
payments to the Distributor, at an annual rate not to exceed 0.25% of its
average daily net assets for distribution services. Under this 12b-1 Plan, the
Fund, either directly or through the Adviser, would make payments periodically
(i) to the Distributor or to select broker/dealers, (ii) to other persons who
have entered into shareholder processing and service agreements with the Adviser
or with the Distributor, with respect to Fund shares owned by shareholders for
which such broker-dealers were the dealer or holder of record, or (iii) for
expenses associated with distribution of Fund shares, including the compensation
of the sales personnel of the Distributor; payments of no more than an effective
annual rate of 0.25%, or such lesser amounts as the Distributor determines
appropriate.

SHAREHOLDER SERVICING AGENT

Pilgrim Group, Inc. serves as Shareholder Servicing Agent for the Fund. The
Shareholder Servicing Agent is responsible for responding to written and
telephonic inquiries from shareholders. The 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, the Fund
pays other expenses, such as legal, audit, transfer agency and custodian
out-of-pocket fees, proxy solicitation costs, and the compensation of Directors
who are not affiliated with the Adviser. Most Fund expenses are allocated
proportionately among all of the outstanding shares of the Fund. However, the
Rule 12b-1 Plan fees for each class of shares are charged proportionately only
to the outstanding shares of that class.

INVESTMENT STRATEGIES AND RISKS OF THE FUND

The Fund may purchase stock equivalents including warrants, option, convertible
debt securities and depository receipts. The common stock equivalents may be
converted into or provide the holder with the right to common stock. These
investments are made in order to limit the risk of a substantial increase in the
market price of a security (or an adverse movement in its applicable currency).

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A warrant typically is a long-term option that permits the holder to buy a
specified number of shares of the issuer's underlying common stock at a
specified exercise price by a particular expiration date. A warrant not
exercised or disposed of by its expiration date expires worthless.

The Fund may purchase put options on particular securities (or on currencies in
which those securities are denominated) in order to protect against a decline in
the market value of the underlying security below the exercise price less the
premium paid for the option (or an adverse movement in the applicable currency
relative to the U.S. dollar). Prior to expiration, most options are expected to
be sold in a closing sale transaction. Profit or loss from the sale depends upon
whether the amount received is more or less than the premium paid plus
transaction costs. The Fund may purchase put and call options on stock indices
in order to hedge against risks of stock market or industry wide stock price
fluctuations.

A convertible security is a fixed-income security (a bond or preferred stock)
that may be converted at a stated price within a specified period of time into a
certain quantity of the common stock of the same or a different issuer.
Convertible securities are senior to common stock in a corporation's capital
structure but are usually subordinated to similar non-convertible securities.
The price of a convertible security is influenced by the market value of the
underlying common stock.

Depositary receipts include American depositary receipts ("ADRs"), European
depositary receipts ("EDRs"), global depositary receipts ("GDRs") and other
similar instruments. Depositary receipts are receipts typically issued in
connection with a U.S. or foreign bank or trust company and evidence ownership
of underlying securities issued by a foreign corporation.

The Fund may also invest in other types of equity securities including preferred
stocks. A preferred stock is a class of capital stock that pays dividends at a
specified rate and that has preference over common stock in the payment of
dividends and the liquidation of assets. Preferred stock does not normally carry
voting rights.

When the Fund's investment adviser believes that debt securities will provide
capital appreciation through favorable changes in relative foreign exchange
rates, in relative interest rate levels or in the creditworthiness of issuers,
Fund may invest primarily in debt securities.

The Fund may invest up to 10% of its total assets in shares of other investment
companies that invest in securities in which it may otherwise invest.

The Fund may invest in fixed-rate and floating- or variable-rate U.S. government
securities. The U.S. Government guarantees payments of interest and principal of
U.S. Treasury bills, notes and bonds, mortgage-related securities and other
securities issued by the U.S. government. Other securities issued by U.S.
government agencies or instrumentalities are supported only by the credit of the
agency or instrumentality, for example those issued by the Federal Home Loan
Bank, whereas others, such as those issued by the FNMA, Farm Credit System and
Student Loan Marketing Association, have an additional line of credit with the
U.S. Treasury.

Short-term U.S. government securities generally are considered to be among the
safest short-term investments. However, the U.S. government does not guarantee
the net asset value of the Funds' shares. With respect to U.S. government
securities supported only by the credit of the issuing agency or instrumentality
or by an additional line of credit with the U.S. Treasury, there is no guarantee
that the U.S. government will provide support to such agencies or
instrumentalities. Accordingly, such U.S. government securities may involve risk
of loss of principal and interest.

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SETTLEMENT TRANSACTIONS

When the Fund enters into contracts for purchase or sale of a portfolio security
denominated in a foreign currency, it may be required to settle a purchase
transaction in the relevant foreign currency or receive the proceeds of a sale
in that currency. In either event, the Fund will be obligated to acquire or
dispose of such foreign currency as is represented by the transaction by selling
or buying an equivalent amount of United States dollars. Furthermore, the Fund
may wish to "lock in" the United States dollar value of the transaction at or
near the time of a purchase or sale of portfolio securities at the exchange rate
or rates then prevailing between the United States dollar and the currency in
which the foreign security is denominated. Therefore, the Fund may, for a fixed
amount of United States dollars, enter into a forward foreign exchange contract
for the purchase or sale of the amount of foreign currency involved in the
underlying securities transaction. In so doing, the Fund will attempt to
insulate itself against possible losses and gains resulting from a change in the
relationship between the United States dollar and the foreign currency during
the period between the date a security is purchased or sold and the date on
which payment is made or received. This process is known as "transaction
hedging".

To effect the translation of the amount of foreign currencies involved in the
purchase and sale of foreign securities and to effect the "transaction hedging"
described above, the Fund may purchase or sell foreign currencies on a "spot"
(i.e. cash) basis or on a forward basis whereby the Fund purchases or sells a
specific amount of foreign currency, at a price set at the time of the contract,
for receipt of delivery at a specified date which may be any fixed number of
days in the future.

Such spot and forward foreign exchange transactions may also be utilized to
reduce the risk inherent in fluctuations in the exchange rate between the United
States dollar and the relevant foreign dollar and the relevant foreign currency
when foreign securities are purchased or sold for settlement beyond customary
settlement time (as described below). Neither type of foreign currency
transaction will eliminate fluctuations in the prices of the Fund's portfolio or
securities or prevent loss if the price of such securities should decline.

PORTFOLIO HEDGING

Some or all of the Fund's portfolio will be denominated in foreign currencies.
As a result, in addition to the risk of change in the market value of portfolio
securities, the value of the portfolio in United States dollars is subject to
fluctuations in the exchange rate between such foreign currencies and the United
States dollar. When, in the opinion of the Adviser it is desirable to limit or
reduce exposure in a foreign currency in order to moderate potential changes in
the United States dollar value of the portfolio, the Fund may enter into a
forward foreign currency exchange contract by which the United States dollar
value of the underlying foreign portfolio securities can be approximately
matched by an equivalent United States dollar liability. This technique is known
as "portfolio hedging" and moderates or reduces the risk of change in the United
States dollar value of the Fund's portfolio only during the period before the
maturity of the forward contract (which will not be in excess of one year).

The Fund may hedge against changes in financial markets, currency rates and
interest rates. The Fund may hedge with "derivatives." Derivatives are
instruments whose value is lined to, or derived from, another instrument, like
an index or a commodity. The Fund, for hedging purposes only, may also enter
into forward foreign currency exchange contracts to increase its exposure to a

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foreign currency that the Adviser expects to increase in value relative to the
United States dollar. The Fund will not attempt to hedge all of its foreign
portfolio positions and will enter into such transactions only to the extent, if
any deemed appropriate by the investment adviser or sub-adviser. Hedging against
a decline in the value of currency does not eliminate fluctuations in the prices
of portfolio securities or prevent losses if the prices of such securities
decline. The Fund will not enter into forward foreign currency exchange
transactions for speculative purposes. The Fund intends to limit transactions as
described in this paragraph to not more than 70% of the total Fund assets.

COVERED CALL OPTIONS

Call options may also be used as a means of participating in an anticipated
price increase of a security on a more limited basis than would be possible if
the security itself were purchased. The Fund may write only covered call
options. Since it can be expected that a call option will be exercised if the
market value of the underlying security increases to a level greater than the
exercise price, this strategy will generally be used when the investment adviser
believes that the call premium received by the Fund plus anticipated
appreciation in the price of the underlying security, up to the exercise price
of the call, will be greater than the appreciation in the price of the security.
The Fund intends to limit transactions as described in this paragraph to less
than 5% of total Fund assets. The Fund will not purchase put and call options
written by others. Also, the Fund will not write any put options. The Fund will
cause its custodian to segregate cash, U.S. Government Securities or other high
grade liquid debt obligations having a value sufficient to meet the Fund's
obligations under the call options.

FUTURES, SWAPS AND OPTIONS ON FUTURES

An interest rate futures contract is an agreement to purchase or sell debt
securities, usually U.S. government securities, at a specified date and price.
For example, the fund may sell interest rate futures contracts (i.e., enter into
a futures contract to sell the underlying debt security) in an attempt to hedge
against an anticipated increase in interest rates and a corresponding decline in
debt securities it owns. The Fund will have collateral assets equal to the
purchase price of the portfolio securities represented by the underlying
interest rate futures contracts it has an obligation to purchase. The Fund may
purchase and sell futures contracts and related options under the following
conditions: (a) the then-current aggregate futures market prices of financial
instruments required to be delivered and purchased under open futures contracts
shall not exceed 30% of the Fund's total assets, at market value; and (b) no
more than 5% of the assets, at market value at the time of entering into a
contract, shall be committed to margin deposits in relation to futures
contracts.

Equity swaps allow the parties to exchange the dividend income or other
components of return on an equity investment (e.g., a group of equity securities
or an index) for a component of return on another non-equity or equity
investment Equity swaps transitions may be volatile and may present the fund
with counterparty risks.

REPURCHASE AGREEMENTS

A repurchase agreement is a contract under which the Fund would acquire a
security for a relatively short period (usually not more than 7 days) subject to
the obligations of the seller to repurchase and the Fund to resell such security
at a fixed time and price (representing the Fund's cost plus interest). Under
the Investment Company Act, repurchase agreements are considered to be loans by
the Fund and must be fully collateralized by collateral assets. If the seller
defaults on its obligations to repurchase the underlying security, the Fund may

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<PAGE>
experience delay or difficulty in exercising its rights to realize upon the
security, may incur a loss if the value of the security declines and may incur
disposition costs in liquidating the security. The Fund intends to limit
repurchase agreements to transactions with institutions believed by the Adviser
to present minimal credit risk. Although the Fund may enter into repurchase
agreements with respect to any portfolio securities which it may acquire
consistent with its investment policies and restrictions, it is the Fund's
present intention to enter into repurchase agreements only with respect to
obligations of the United States government or its agencies or instrumentalities
to meet anticipated redemptions or pending investments or reinvestment of Fund
assets in portfolio securities. The Fund will enter into repurchase agreements
only with member banks of the Federal Reserve System and with "primary dealers"
in United States government securities. In addition if bankruptcy proceedings
are commenced with respect to the seller, be subject to risks associated with
changes in market value of the collateral securities. The Fund intends to limit
repurchase agreements to institutions believed by the Adviser to present minimal
credit risk. The Fund will not enter into repurchase agreements maturing in more
than seven days if the aggregate of such repurchase agreements and all other
illiquid securities when taken together would exceed 15% of the total assets of
the Fund. The Fund treats any securities subject to restrictions on repatriation
for more than seven days, and securities issued in connection with foreign debt
conversion programs that are restricted as to remittance of invested capital or
profit, as illiquid. The Fund also treats repurchase agreements with maturities
in excess of seven days as illiquid. Illiquid securities do not include
securities that are restricted from trading on formal markets for some period of
time but for which an active informal market exists, or securities that meet the
requirements of Rule 144A under the Securities Act of 1933 and that, subject to
the review by the Board of Directors and guidelines adopted by the Board of
Directors, the Adviser has determined to be liquid.

REVERSE REPURCHASE AGREEMENTS

The Fund may purchase reverse repurchase agreements. In a reverse repurchase
agreement, the Fund sells to a financial institution a security that it holds
and agrees to repurchase the same security at an agreed-upon price and date.

WHEN ISSUED AND FORWARD COMMITMENT SECURITIES

The Fund may make contracts to purchase securities for a fixed price at a future
date beyond customary settlement time ("forward commitments") because new issues
of securities are typically offered to investors, such as the Fund, on that
basis. Forward commitments involve a risk of loss if the value of the security
to be purchased declines prior to the settlement date. This risk is in addition
to the risk of decline in value of the Fund's other assets. Although the Fund
will enter into such contracts with the intention of acquiring the securities,
the Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. The Fund may realize short-term profits
or losses upon the sale of forward commitments. The Fund may purchase U.S.
government or other securities on a "when-issued" basis and may purchase or sell
securities on a "delayed delivery" basis. The price is fixed at the time the
commitment is made, but delivery and payment for the securities take place at a
later date. When-issued securities and forward commitments may be sold prior to
the settlement date, but the Fund will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities. No income accrues on securities that have been purchased pursuant to
a forward commitment or on a when-issued basis prior to delivery to a fund. At
the time the Fund enters into a transaction on a when-issued or forward
commitment basis, it supports its obligation with collateral assets equal to the
value of the when-issued or forward commitment securities and causes the
collateral assets to be marked to market daily. There is a risk that the
securities may not be delivered and that the fund may incur a loss.

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<PAGE>
FORWARD CURRENCY CONTRACTS

A forward currency contract is a contract individually negotiated and privately
traded by currency traders and their customers and creates an obligation to
purchase or sell a specific currency for an agreed-upon price at a future date.
The Fund generally does not enter into forward contracts with terms greater than
one year. The Fund generally enters into forward contracts only under two
circumstances. First, if the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security by entering into a forward contract to buy
the amount of a foreign currency needed to settle the transaction. Second, if
the Adviser believes that the currency of a particular foreign country will
substantially rise or fall against the U.S. dollar, it may enter into a forward
contract to buy or sell the currency approximating the value of some or all of a
fund's portfolio securities denominated in such currency. The Fund will not
enter into a forward contract if, as a result, it would have more than one-third
of total assets committed to such contracts (unless it owns the currency that it
is obligated to deliver or has caused its custodian to segregate segregable
assets having a value sufficient to cover its obligations). Although forward
contracts are used primarily to protect the Fund from adverse currency
movements, they involve the risk that currency movements will not be accurately
predicted.

Investors should recognize that investing in securities of foreign companies and
in particular securities of companies domiciled in or doing business in emerging
markets and emerging countries involves certain risk considerations, including
those set forth below, which are not typically associated with investing in
securities of U.S. companies.

FOREIGN CURRENCY CONSIDERATIONS

The Fund's assets will be invested in securities of foreign companies and
substantially all income will be received by the Fund in foreign currencies.
However, the Fund will compute and distribute its income in dollars, and the
computation of income will be made on the date of its receipt by the Fund at the
foreign exchange rate in effect on that date. Therefore, if the value of the
foreign currencies in which the Fund receives its income falls relative to the
dollar between receipt of the income and the making of Fund distributions, the
Fund will be required to liquidate securities in order to make distributions if
the Fund has insufficient cash in dollars to meet distribution requirements.

The value of the assets of the Fund as measured in dollars also may be affected
favorably or unfavorably by fluctuations in currency rates and exchange control
regulations. Further, the Fund may incur costs in connection with conversions
between various currencies. Foreign exchange dealers realize a profit based on
the difference between the prices at which they are buying and selling various
currencies. Thus, a dealer normally will offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire immediately to resell that currency to the dealer. The Fund will conduct
its foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market, or through
entering into forward or futures contracts to purchase or sell foreign
currencies.

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<PAGE>
RISKS ASSOCIATED WITH HEDGING TRANSACTIONS

Hedging transactions have special risks associated with them, including possible
default by the counterparty to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of a hedging transaction could result in losses greater than if it had
not been used. Use of call options could result in losses to the Fund, force the
sale or purchase of portfolio securities at inopportune times or for prices
lower than current market values, or cause the Fund to hold a security it might
otherwise sell.

Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, the risk exists that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that the Fund is engaging in portfolio
hedging. Currency transactions are also subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be adversely affected by
government exchange controls, limitations or restrictions on repatriation of
currency, and manipulations or exchange restrictions imposed by governments.
These forms of governmental actions can result in losses to the Fund if it is
unable to deliver or receive currency or monies in settlement of obligations and
could also cause hedges it has entered into to be rendered useless, resulting in
full currency exposure as well as incurring transaction costs.

In addition, the Fund pays commissions and other costs in connection with such
investments. Losses resulting from the use of hedging transactions will reduce
the Fund's net asset value, and possibly income, and the losses can be greater
than if hedging transactions had not been used.

RISKS OF HEDGING TRANSACTIONS OUTSIDE THE UNITED STATES

When conducted outside the U.S., hedging transactions may not be regulated as
rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and will be subject to the risk of government actions affecting
trading in, or the price of, foreign securities, currencies and other
instruments. The value of positions taken as part of non-U.S. hedging
transactions also could be adversely affected by: (1) other complex foreign
political, legal and economic factors; (2) lesser availability of data on which
to make trading decisions than in the U.S.; (3) delays in the Fund's ability to
act upon economic events occurring in foreign markets during non-business hours
in the U.S.; (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the U.S.; and (5) lower trading
volume and liquidity.

INVESTMENT AND REPATRIATION RESTRICTIONS

Some foreign countries may have laws and regulations which currently preclude
direct foreign investment in the securities of their companies. However,
indirect foreign investment in the securities of companies listed and traded on
the stock exchanges in these countries is permitted by certain foreign countries
through investment funds which have been specifically authorized. The Fund may
invest in these investment funds subject to the provisions of the 1940 Act as
discussed below under "Investment Restrictions". If the Fund invests in such
investment funds, the Fund's shareholders will bear not only their proportionate
share of the expenses of the Fund (including operating expenses and the fees of
the Investment Adviser), but also will bear indirectly similar expenses of the
underlying investment funds.

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<PAGE>
In addition, prior governmental approval for foreign investments may be required
under certain circumstances in some foreign countries, while the extent of
foreign investment in domestic companies may be subject to limitation in other
foreign countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in foreign countries to prevent, among other
concerns, violation of foreign investment limitations.

Repatriation of investment income, capital and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some foreign
countries. The Fund could be adversely affected by delays in or a refusal to
grant any required governmental approval for such repatriation.

FOREIGN SECURITIES MARKETS

Trading volume on foreign country stock exchanges is substantially less than
that on the New York Stock Exchange. Further, securities of some foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies. Similarly, volume and liquidity in most foreign bond markets is
substantially less than in the U.S. and, consequently, volatility of price can
be greater than in the U.S. Fixed commissions on foreign exchanges are generally
higher than negotiated commissions on U.S. exchanges, although the Fund
endeavors to achieve the most favorable net results on its portfolio
transactions and may be able to purchase the securities in which the Fund may
invest on other stock exchanges where commissions are negotiable.

Companies in foreign countries are not generally subject to uniform accounting,
auditing and financial reporting standards, practices and disclosure
requirements comparable to those applicable to U.S. companies. Consequently,
there may be less publicly available information about a foreign company than
about a U.S. company. Further, there is generally less governmental supervision
and regulation of foreign stock exchanges, brokers and listed companies than in
the U.S. Further, these Funds may encounter difficulties or be unable to pursue
legal remedies and obtain judgments in foreign courts.

ECONOMIC AND POLITICAL RISKS

The economies of individual foreign countries in which the Fund invests may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Further, the economies of
foreign countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade. These economies also have been and may continue to be adversely affected
by economic conditions in the countries with which they trade. The export driven
nature of Asian economies is often dependent on the strength of their trading
partners in the United States and Europe, although growing intra-regional trade
is seen mitigating some of this external dependence.

With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments (including
war) which could affect adversely the economies of such countries or the Fund's
investments in those countries. In addition, it may be more difficult to obtain
a judgement in a court outside of the United States.

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<PAGE>
INVESTMENT RESTRICTIONS

The Fund's investment objective and the following investment restrictions are
matters or fundamental policy which may not be changed without the affirmative
vote of the lesser of (a) 67% or more of the shares of the Fund present at a
shareholders' meeting at which more than 50% of the outstanding shares are
present or represented by proxy or (b) more than 50% of the outstanding shares.
Under these investment restrictions:

(1) the Fund will not issue any senior security (as defined in the 1940
Act), except that: (a) the Fund may enter into commitments to purchase
securities in accordance with the Fund's investment program, including
reverse repurchase agreements, foreign exchange contracts, delayed
delivery and when-issued securities, which may be considered the
issuance of senior securities; (b) the Fund may engage in transactions
that may result in the issuance of a senior security to the extent
permitted under applicable regulations, interpretation of the 1940 Act
or an exemptive order; (c) the Fund may engage in short sales of
securities to the extent permitted in its investment program and other
restrictions; (d) the purchase or sale of futures contracts and
related options shall not be considered to involve the issuance of
senior securities; and (e) subject to fundamental restrictions, the
Fund may borrow money as authorized by the 1940 Act.

(2) The Fund will not borrow money, except that: (a) the Fund may enter
into certain futures contracts and options related thereto; (b) the
Fund may enter into commitments to purchase securities in accordance
with the Fund's investment program, including delayed delivery and
when-issued securities and reverse repurchase agreements; (c) for
temporary emergency purposes, the Fund may borrow money in amounts not
exceeding 5% of the value of its total assets at the time when the
loan is made; (d) The Fund may pledge its portfolio securities or
receivables or transfer or assign or otherwise encumber them in an
amount not exceeding one-third of the value of its total assets; and
(e) for purposes of leveraging, the Fund may borrow money from banks
(including its custodian bank), only if, immediately after such
borrowing, the value of the Fund's assets, including the amount
borrowed, less its liabilities, is equal to at least 300% of the
amount borrowed, plus all outstanding borrowings. If at any time, the
value of the Fund's assets fails to meet the 300% asset coverage
requirement relative only to leveraging, the Fund will, within three
days (not including Sundays and holidays), reduce its borrowings to
the extent necessary to meet the 300% test.

(3) The Fund will not act as an underwriter of securities except to the
extent that, in connection with the disposition of portfolio
securities by the Fund, the Fund may be deemed to be an underwriter
under the provisions of the 1933 Act.

(4) The Fund will not purchase real estate, interests in real estate or
real estate limited partnership interests except that, to the extent
appropriate under its investment program, the Fund may invest in
securities secured by real estate or interests therein or issued by
companies, including real estate investment trusts, which deal in real
estate or interests therein.

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<PAGE>
(5) The Fund will not make loans, except that, to the extent appropriate
under its investment program, the Fund may: (a) purchase bonds,
debentures or other debt securities, including short-term obligations;
(b) enter into repurchase transactions; and (c) lend portfolio
securities provided that the value of such loaned securities does not
exceed one-third of the Fund's total assets.

(6) The Fund will not invest in commodity contracts, except that the Fund
may, to the extent appropriate under its investment program, purchase
securities of companies engaged in such activities, may enter into
transactions in financial and index futures contracts and related
options, may engage in transactions on a when-issued or forward
commitment basis, and may enter into forward currency contracts.

(7) The Fund will not concentrate its investments in any one industry,
except that the Fund may invest up to 25% of its total assets in
securities issued by companies principally engaged in any one
industry. The Fund considers foreign government securities and
supranational organizations to be industries. This limitation,
however, will not apply to securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities.

(8) The Fund will not purchase securities of an issuer, if (a) more than
5% of the Fund's total assets taken at market value would at the time
be invested in the securities of such issuer, except that such
restriction shall not apply to securities issued or guaranteed by the
United States government or its agencies or instrumentalities or, with
respect to 25% of the Fund's total assets, to securities issued or
guaranteed by the government of any country other than the United
States which is a member of the Organization for Economic Cooperation
and Development ("OECD"). The member countries of OECD are at present:
Australia, Austria, Belgium, Canada, Denmark, Germany, Finland,
France, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the
Netherlands, New Zealand, Norway, Portugal, Spain, Sweden,
Switzerland, Turkey, the United Kingdom and the United States; or (b)
such purchases would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the Fund.

In addition to the above fundamental restrictions, the Fund has undertaken the
following non fundamental restrictions, which may be changed in the future by
the Board of Directors, without a vote of the shareholders of the Fund:

(1) The Fund will not participate on a joint or joint-and-several basis in
any securities trading account. The "bunching" of orders for the sale
or purchase of marketable portfolio securities with other accounts
under the management of the investment adviser to save commissions or
to average prices among them is not deemed to result in a securities
trading account.

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<PAGE>
(2) The Fund may purchase and sell futures contracts and related options
under the following conditions: (a) the then-current aggregate futures
market prices of financial instruments required to be delivered and
purchased under open futures contracts shall not exceed 30% of the
Fund's total assets, at market value; and (b) no more than 5% of the
assets, at market value at the time of entering into a contract, shall
be committed to margin deposits in relation to futures contracts.

(3) The Fund will not make short sales of securities, other than short
sales "against the box," or purchase securities on margin except for
short-term credits necessary for clearance of portfolio transactions,
provided that this restriction will not be applied to limit the use of
options, futures contracts and related options, in the manner
otherwise permitted by the investment restrictions, policies and
investment programs of the Fund.

(4) The Fund will not purchase the securities of any other investment
company, except as permitted under the 1940 Act.

(5) The Fund will not invest for the purpose of exercising control over or
management of any company.

(6) The Fund will not purchase warrants except in units with other
securities in original issuance thereof or attached to other
securities, if at the time of the purchase, the Fund's investment in
warrants, valued at the lower of cost or market, would exceed 5% of
the Fund's total assets. For these purposes, warrants attached to
units or other securities shall be deemed to be without value.

(7) The Fund will not invest more than 15% of its total assets in illiquid
securities. Illiquid securities are securities that are not readily
marketable or cannot be disposed of promptly within seven days and in
the usual course of business without taking a materially reduced
price. Such securities include, but are not limited to, time deposits
and repurchase agreements with maturities longer than seven days.
Securities that may be resold under Rule 144A or securities offered
pursuant to Section 4(2) of the Securities Act of 1933, as amended,
shall not be deemed illiquid solely by reason of being unregistered.
The Investment Adviser shall determine whether a particular security
is deemed to be liquid based on the trading markets for the specific
security and other factors.

The percentage restrictions referred to above are to be adhered to at the time
of investment and are not applicable to a later increase or decrease in
percentage beyond the specified limit resulting from change in values or net
assets.

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PORTFOLIO TRANSACTIONS

The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with this policy, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., and such other
policies as the Directors may determine, Pilgrim Investments may consider sales
of shares of the Fund and of the other funds managed by Pilgrim Investments (the
"Pilgrim Funds") as a factor in the selection of broker-dealers to execute the
Fund's portfolio transactions. In addition, pursuant to the Fund's investment
management agreement, management consideration may be given in the selection of
broker-dealers to research provided and payment may be made of a commission
higher than that charged by another broker-dealer which does not furnish
research services or which furnishes research services deemed to be of lesser
value, so long as the criteria of Section 28(e) of the Securities Exchange Act
of 1934 are met. Section 28 (e) of the Securities Exchange Act of 1934 was
adopted in 1975 and specifies that a person with investment discretion shall not
be "deemed to have acted unlawfully or to have breached a fiduciary duty" solely
because such person has caused the account to pay higher commission than the
lowest available under certain circumstances, provided that the person so
exercising investment discretion makes a good faith determination that the
amount of commissions paid was "reasonable in relation to the value of the
brokerage and research services provided are viewed in terms of either that
particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion."

Currently, it is not possible to determine the extent to which commissions that
reflect an element of value for research services ("soft dollars") might exceed
commissions that would be payable for execution services alone. Nor generally
can the value of research services to the Fund be measured. Research services
furnished might be useful and of value to Pilgrim Investments and its
affiliates, in serving other clients as well as the Fund. On the other hand, any
research services obtained by Pilgrim Investments or its affiliates from the
placement of portfolio brokerage of other clients might be useful and of value
to Pilgrim Investments in carrying out its obligations to the Fund.

The Fund anticipates that its brokerage transactions involving securities of
companies domiciled in countries other than the United States will normally be
conducted on the principal stock exchanges of those countries. Fixed commissions
of foreign stock exchange transactions are generally higher than the negotiated
commission rates available in the United States. There is generally less
government supervision and regulation of foreign stock exchanges and
broker-dealers than in the United States.

Although the Fund does not generally intend to invest for the purpose of seeking
short-term profits, the Fund's investments may be changed when circumstances
warrant, without regard to the length of time a particular security has been
held. It is expected that the Fund will have an annual portfolio turnover rate
that will generally not exceed 100%. A 100% turnover rate would occur if all the
Fund's portfolio investments were sold and either repurchased or replaced within
a year. A high turnover rate (100% or more) results in correspondingly greater
brokerage commissions and other transactional expenses which are borne by the
Fund. High portfolio turnover may result in the realization of net short-term
capital gains by the Fund which, when distributed to shareholders, will be
taxable as ordinary income. See "Tax Considerations."

The Fund paid brokerage commissions and portfolio turnover rates are as follows:

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Total Average Soft Dollar Portfolio
Commissions Paid Commissions Paid Turnover Rate
---------------- ---------------- -------------
1997 $ 177,179 $ 20,613 122.56%
1998 $ 174,405 $ 40,453 143.67%
1999 $ $ %

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
Fund are offered at the net asset value next computed following receipt of the
order by the dealer (and/or the Distributor) or by the Fund's transfer agent,
State Street Bank & Trust Company, ("Transfer Agent"), plus, for Class A, a
varying sales charge depending upon the amount of money invested, as set forth
in the Prospectus.

SPECIAL PURCHASES AT NET ASSET VALUE

Class A shares of the Fund may be purchased at net asset value, without a sales
charge, by persons who have redeemed their Class A shares of the Fund (or shares
of other funds managed by the Adviser 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 Fund 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 shares of the Fund 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 the Fund is a legally permissible investment and that is prohibited by
applicable investment law from paying a sales charge or commission in connection
with the purchase of shares of any registered management investment company ("an
eligible governmental authority"). If an investment by an eligible governmental
authority at net asset value is made though a dealer who has executed a selling
group agreement with respect to the Fund (or the other open-end Pilgrim Funds)
the Distributor may pay the selling firm 0.25% of the Offering Price.

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The officers, directors and bona fide full-time employees of the Fund and the
officers, directors and full-time employees of the Adviser, any Sub-Adviser, the
Distributor, any service provider to the 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 Adviser or any Sub-Adviser, may purchase Class A shares
of the Fund at net asset value without a sales charge. Such purchaser may be
required to sign a letter stating that the purchase is for his own investment
purposes only and that the securities will not be resold except to the Fund. The
Fund may, under certain circumstances, allow registered investment advisers' to
make investments on behalf of their clients at net asset value without any
commission or concession.

Class A shares may also be purchased at net asset value by certain fee based
registered investment advisers, trust companies and bank trust departments under
certain circumstances making investments on behalf of their clients and by
shareholders who have authorized the automatic transfer of dividends from the
same class of another open-end fund managed by the Adviser. Class A shares may
also be purchased without a sales charge by (i) shareholders who have authorized
the automatic transfer of dividends from the same class of another Pilgrim Fund
distributed by the Distributor or from Pilgrim Prime Rate Trust; (ii) registered
investment advisors, trust companies and bank trust departments investing in
Class A shares on their own behalf or on behalf of their clients, provided that
the aggregate amount invested in any one or more Funds, during the 13 month
period starting with the first investment, equals at least $1 million; (iii)
broker-dealers, who have signed selling group agreements with the Distributor,
and registered representatives and employees of such broker-dealers, for their
own accounts or for members of their families (defined as current spouse,
children, parents, grandparents, uncles, aunts, siblings, nephews, nieces, step
relations, relations-at-law and cousins); (iv) broker-dealers using third party
administrators for qualified retirement plans who have entered into an agreement
with the Pilgrim Funds or an affiliate, subject to certain operational and
minimum size requirements specified from time-to-time by the Pilgrim Funds; (v)
accounts as to which a banker or broker-dealer charges an account management fee
("wrap accounts"); and (vi) any registered investment company for which Pilgrim
Investments, Inc. serves as adviser.

The Fund may terminate or amend the terms of these sales charge waivers at any
time.

LETTERS OF INTENT AND RIGHTS OF ACCUMULATION

An investor may immediately qualify for a reduced sales charge on a purchase of
Class A shares 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 Adviser's funds (excluding Pilgrim General Money
Market Shares) acquired within 90 days before the Letter of Intent is filed will

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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

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<PAGE>
and applicable offering price of the current purchase. The reduced sales charge
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 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 the Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the New York Stock Exchange is
restricted as determined by the SEC or such exchange is closed for other than
weekends and holidays; (b) an emergency exists as determined by the SEC making
disposal of portfolio series or valuation of net assets of the Fund not
reasonably practicable; or (c) for such other period as the SEC may permit for
the protection of the Fund's shareholders. At various times, the Fund may be
requested to redeem shares for which it has not yet received good payment.
Accordingly, the Fund may delay the mailing of a redemption check until such
time as it has assured itself that good payment has been collected for the
purchase of such shares, which may take up to 15 days or longer.

The Fund intends to pay in cash for all shares redeemed, but under abnormal
conditions that make payment in cash unwise, the Fund may make payment wholly or
partly in securities at their then current market value equal to the redemption
price. In such case, an investor may incur brokerage costs in converting such
securities to cash. However, the Fund has elected to be governed by the
provisions of Rule 18f-1 under the 1940 Act, which contains a formula for
determining the minimum amount of cash to be paid as part of any redemption. In
the event the 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.

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<PAGE>
Due to the relatively high cost of handling small investments, the Fund reserves
the right, upon 30 days written notice, to redeem, at net asset value (less any
applicable deferred sales charge), the shares of any shareholder whose account
has a value of less than $1,000 in the Fund, other than as a result of a decline
in the net asset value per share. Before the Fund redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the value
of the shares in the account is less than the minimum amount and will allow the
shareholder 30 days to make an additional investment in an amount that will
increase the value of the account to at least $1,000 before the redemption is
processed. This policy will not be implemented where the Fund has previously
waived the minimum investment requirements.

The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the portfolio securities at
the time of redemption or repurchase.

Certain purchases of Class A shares and most Class B and Class C shares may be
subject to a CDSC. Shareholders will be charged a CDSC if certain of those
shares are redeemed within the applicable time period as stated in the
prospectus.

No CDSC is imposed on any shares subject to a CDSC to the extent that those
shares (i) are no longer subject to the applicable holding period, (ii) resulted
from reinvestment of distributions on CDSC shares, or (iii) were exchanged for
shares of another fund managed by the Adviser, provided that the shares acquired
in such exchange and subsequent exchanges will continue to remain subject to the
CDSC, if applicable, until the applicable holding period expires.

The CDSC or redemption fee will be waived for certain redemptions of shares upon
(i) the death or permanent disability of a shareholder, or (ii) in connection
with mandatory distributions from an Individual Retirement Account ("IRA") or
other qualified retirement plan. The CDSC or redemption fee will be waived in
the case of a redemption of shares following the death or permanent disability
of a shareholder if the redemption is made within one year of death or initial
determination of permanent disability. The waiver is available for total or
partial redemptions of shares owned by an individual or an individual in joint
tenancy (with rights of survivorship), but only for redemptions of shares held
at the time of death or initial determination of permanent disability. The CDSC
or redemption fee will also be waived in the case of a total or partial
redemption of shares in connection with any mandatory distribution from a
tax-deferred retirement plan or an IRA. The waiver does not apply in the case of
a tax-free rollover or transfer of assets, other than one following a separation
from services, except that a CDSC or redemption fee may be waived in certain
circumstances involving redemptions in connection with a distribution from a
qualified employer retirement plan in connection with termination of employment
or termination of the employer's plan and the transfer to another employer's
plan or to an IRA. The shareholder must notify the Fund either directly or
through the Distributor at the time of redemption that the shareholder is
entitled to a waiver of CDSC or redemption fee. The waiver will then be granted
subject to confirmation of the shareholder's entitlement. The CDSC or redemption
fee, which may be imposed on Class A shares purchased in excess of $1 million,
will also be waived for registered investment advisors, trust companies and bank
trust departments investing on their own behalf or on behalf of their clients.
These waivers may be changed at any time.

REINSTATEMENT PRIVILEGE

If you sell Class B or Class C shares of a 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

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<PAGE>
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. 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 Adviser 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.

DETERMINATION OF SHARE PRICE

The Fund calculates net asset value as of the close of normal trading on the New
York Stock Exchange (currently 4:00 p.m., Eastern time, unless weather,
equipment failure or other factors contribute to an earlier closing time) each
business day. It is expected that the New York Stock Exchange will be closed on
Saturdays and Sundays and on New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Per share net asset value is calculated by dividing the value of the Fund's
total net assets by the total number of the Fund's shares then outstanding.

Portfolio securities are valued using current market valuations: either the last
reported sales price or, in the case of securities for which there is no
reported last sale and fixed-income securities, the mean between the closing bid
and asked price. Securities for which market quotations are not readily
available or which are illiquid are valued at their fair values as determined in
good faith under the supervision of the Funds' officers, and by the Adviser and
the Board, in accordance with methods that are specifically authorized by the
Board. Short-term obligations with maturities of 60 days or less are valued at
amortized cost as reflecting fair value.

The value of securities denominated in foreign currencies and traded on foreign
exchanges or in foreign markets will be translated into U.S. dollars at the last
price of their respective currency denomination against U.S. dollars quoted by a
major bank or, if no such quotation is available, at the rate of exchange
determined in accordance with policies established in good faith by the Boards.
Because the value of securities denominated in foreign currencies must be
translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar may affect the net asset value of the Fund's shares
even without any change in the foreign-currency denominated values of such
securities.

Because foreign securities markets may close before the Fund determines its net
asset value, events affecting the value of portfolio securities occurring
between the time prices are determined and the time the Fund calculates its net
asset value may not be reflected unless the Adviser, under supervision of the
Board, determines that a particular event would materially affect the Fund's net
asset value.

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<PAGE>
SHAREHOLDER INFORMATION

Certificates representing shares of the 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.).

The Fund reserves the right, if conditions exist that make cash payments
undesirable, to honor any request for redemption or repurchase order with
respect to shares of the Fund by making payment in whole or in part in readily
marketable securities chosen by the Fund and valued as they are for purposes of
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. The Fund has elected, however, to be governed by Rule 18f-1
under the 1940 Act as a result of which the Fund is obligated to redeem shares
with respect to any one shareholder during any 90-day period solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of the period.

SHAREHOLDER SERVICES AND PRIVILEGES

As discussed in the Prospectus, the Fund provides a Pre-Authorized Investment
Program for the convenience of investors who wish to purchase shares of the 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 Fund. 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 the 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 the 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 the Fund will not be issued
unless the shareholder requests them in writing.

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<PAGE>
SELF-EMPLOYED AND CORPORATE RETIREMENT PLANS

For self-employed individuals and corporate investors that wish to purchase
shares of the Fund, there is available through the Fund a Prototype Plan and
Custody Agreement. The Custody Agreement provides that Investors Fiduciary Trust
Company, Kansas City, Missouri, will act as Custodian under the Plan, and will
furnish custodial services for an annual maintenance fee of $12.00 for each
participant, with no other charges. (This fee is in addition to the normal
Custodian charges paid by the Fund.) 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
Fund. Employers who wish to use shares of the 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 the 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
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
Fund). 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 Fund. An IRA using shares of the
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 the 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).

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<PAGE>
(2) Telephone redemption and/or exchange instructions should be made by dialing
1-800-992-0180 and selecting option 3.

(3) The Fund will not permit exchanges in violation of any of the terms and
conditions set forth in the Fund's Prospectus or herein.

(4) Telephone redemption requests must meet the following conditions to be
accepted by the Fund:

(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 sixty (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.

(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 Fund to
be purchased on the exchange having the same aggregate net asset value as
the shares being exchanged shall be substituted in the escrow account.
Shares held in escrow may not be redeemed until the Letter of Intent has
expired and/or the appropriate adjustments have been made to the account.

(9) Shares may not be exchanged and/or redeemed unless an exchange and/or
redemption privilege is offered pursuant to the Fund's then-current
prospectus.

(10) Proceeds of a redemption may be delayed up to 15 days or longer until the
check used to purchase the shares being redeemed has been paid by the bank
upon which it was drawn.

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SYSTEMATIC WITHDRAWAL PLAN

You may elect to make periodic withdrawals from your account in any fixed amount
in excess of $100 to yourself, or to anyone else you properly designate, as long
as the account has a current value of at least $10,000. To establish a
systematic cash withdrawal, complete the Systematic Withdrawal Plan section of
the Account Application. To have funds deposited to your bank account, follow
the instructions on the Account Application. You may elect to have monthly,
quarterly, semi-annual or annual payments. Redemptions are normally processed on
the fifth day prior to the end of the month, quarter or year. Checks are then
mailed or proceeds are forwarded to your bank account on or about the first of
the following month. You may change the amount, frequency and payee, or
terminate the plan by giving written notice to the Transfer Agent. A Systematic
Withdrawal Plan may be modified at any time by the 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,
whichever is greater. There are no separate charges to you under this Plan,
although a CDSC may apply if you purchased Class A, B or C shares. Shareholders
who elect to have a systematic cash withdrawal must have all dividends and
capital gains reinvested. As shares of the Fund are redeemed under the Plan, you
may realize a capital gain or loss for income tax purposes.

DISTRIBUTIONS

The Fund intends to pay annual dividends from investment income, if earned and
as declared by its Board of Directors. The Board of Directors may, at its
discretion, elect to retain or declare and pay distributions from any realized
security profits.

Any dividends and distribution payments will be reinvested at net asset value,
without sales charge, in additional full and fractional shares of the Fund
unless and until the shareholder notifies State Street Bank and Trust Company
(the "Transfer Agent") in writing that he wants to receive his payments in cash.
This request must be received by the Transfer Agent at least seven days before
the dividend record date. Upon receipt by the Transfer Agent of such written
notice, all further payments will be made in cash until written notice to the
contrary is received. An account of such shares owned by each shareholder will
be maintained by the Transfer Agent.

Shareholders whose accounts are maintained by the Agent will have the same
rights as other shareholders with respect to shares so registered (see "How to
Purchase Shares" in the Prospectus).

TAX CONSIDERATIONS

Information set forth in the Prospectus and this SAI is only a summary of
certain key tax considerations generally affecting purchasers of shares of the
Fund. The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt has been made to present a complete explanation of the
federal, state and local tax treatment of the Fund or the implications to
shareholders, and the discussions here and in the Fund's Prospectus are not
intended as substitutes for careful tax planning. Accordingly, potential
purchasers of shares of the Fund are urged to consult their tax advisers with
specific reference to their own tax circumstances. In addition, the tax
discussion in the Prospectus and this SAI is based on tax law in effect on the
date of the Prospectus and this SAI; such laws and regulations may be changed by
legislative, judicial or administrative action, sometimes with retroactive
effect.

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QUALIFICATION AS A REGULATED INVESTMENT COMPANY

The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, the Fund is not
subject to federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of expenses)
and capital gain net income (i.e., the excess of capital gains over capital
losses) that it distributes to shareholders, provided that it distributes at
least 90% of its investment company taxable income (i.e., net investment income
and the excess of net short-term capital gain over net long-term capital loss)
for the taxable year (the "Distribution Requirement"), and satisfies certain
other requirements of the Code that are described below. Distributions by the
Fund made during the taxable year or, under specified circumstances, within
twelve months after the close of the taxable year, will be considered
distributions of income and gains of the taxable year and will, therefore, count
toward satisfaction of the Distribution Requirement.

In addition to satisfying the Distribution Requirement, a regulated investment
company must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement").

In general, gain or loss recognized by the Fund on the disposition of an asset
will be a capital gain or loss. In addition, gain will be recognized as a result
of certain constructive sales, including short sales "against the box." However,
gain recognized on the disposition of a debt obligation purchased by the Fund at
a market discount (generally, at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of the market discount
which accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, except for regulated futures
contracts or non-equity options subject to Code section 1256 (unless the Fund
elects otherwise), will generally be treated as ordinary income or loss.

Further, the Code also treats as ordinary income a portion of the capital gain
attributable to a transaction where substantially all of the return realized is
attributable to the time value of the Fund's net investment in the transaction
and: (1) the transaction consists of the acquisition of property by the Fund and
a contemporaneous contract to sell substantially identical property in the
future; (2) the transaction is a straddle within the meaning of section 1092 of
the Code; (3) the transaction is one that was marketed or sold to the Fund on
the basis that it would have the economic characteristics of a loan but the
interest-like return would be taxed as capital gain; or (4) the transaction is
described as a conversion transaction in the Treasury Regulations. The amount of
the gain recharacterized generally will not exceed the amount of the interest
that would have accrued on the net investment for the relevant period at a yield
equal to 120% of the federal long-term, mid-term, or short-term rate, depending
upon the type of instrument at issue, reduced by an amount equal to: (1) prior
inclusions of ordinary income items from the conversion transaction and (2) the
capital interest on acquisition indebtedness under Code section 263(g). Built-in
losses will be preserved where the Fund has a built-in loss with respect to
property that becomes a part of a conversion transaction. No authority exists
that indicates that the converted character of the income will not be passed
through to the Fund's shareholders.

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<PAGE>
In general, for purposes of determining whether capital gain or loss recognized
by the Fund on the disposition of an asset is long-term or short-term, the
holding period of the asset may be affected if (1) the asset is used to close a
"short sale" (which includes for certain purposes the acquisition of a put
option) or is substantially identical to another asset so used, (2) the asset is
otherwise held by the Fund as part of a "straddle" (which term generally
excludes a situation where the asset is stock and the Fund grants a qualified
covered call option (which, among other things, must not be deep-in-the-money)
with respect thereto), or (3) the asset is stock and the Fund grants an
in-the-money qualified covered call option with respect thereto. In addition,
the Fund may be required to defer the recognition of a loss on the disposition
of an asset held as part of a straddle to the extent of any unrecognized gain on
the offsetting position. Any gain recognized by the Fund on the lapse of, or any
gain or loss recognized by the Fund from a closing transaction with respect to,
an option written by the Fund will be treated as a short-term capital gain or
loss.

Certain transactions that may be engaged in by the Fund (such as regulated
futures contracts, certain foreign currency contracts, and options on stock
indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is taken into account for
the taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
contracts (including any capital gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is generally treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. The Fund, however,
may elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other investments of the Fund that are
not Section 1256 contracts.

The Fund may purchase securities of certain foreign investment funds or trusts
which constitute passive foreign investment companies ("PFICs") for federal
income tax purposes. If the Fund invests in a PFIC, it has three separate
options. First, it may elect to treat the PFIC as a qualified electing fund (a
"QEF"), in which event the Fund will each year have ordinary income equal to its
pro rata share of the PFIC's ordinary earnings for the year and long-term
capital gain equal to its pro rata share of the PFIC's net capital gain for the
year, regardless of whether the Fund receives distributions of any such ordinary
earnings or capital gains from the PFIC. Second, the Fund that invests in stock
of a PFIC may make a mark-to-market election with respect to such stock.
Pursuant to such election, the Fund will include as ordinary income any excess
of the fair market value of such stock at the close of any taxable year over the
Fund's adjusted tax basis in the stock. If the adjusted tax basis of the PFIC
stock exceeds the fair market value of the stock at the end of a given taxable
year, such excess will be deductible as ordinary loss in an amount equal to the
lesser of the amount of such excess or the net mark-to-market gains on the stock
that the Fund included in income in previous years. The Fund's holding period
with respect to its PFIC stock subject to the election will commence on the
first day of the next taxable year. If the Fund makes the mark-to-market
election in the first taxable year it holds PFIC stock, it will not incur the
tax described below under the third option.

Finally, if the Fund does not elect to treat the PFIC as a QEF and does not make
a mark-to-market election, then, in general, (1) any gain recognized by the Fund
upon the sale or other disposition of its interest in the PFIC or any "excess

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distribution" (as defined) received by the Fund from the PFIC will be allocated
ratably over the Fund's holding period of its interest in the PFIC stock, (2)
the portion of such gain or excess distribution so allocated to the year in
which the gain is recognized or the excess distribution is received shall be
included in the Fund's gross income for such year as ordinary income (and the
distribution of such portion by the Fund to shareholders will be taxable as an
ordinary income dividend, but such portion will not be subject to tax at the
Fund level), (3) the Fund shall be liable for tax on the portions of such gain
or excess distribution so allocated to prior years in an amount equal to, for
each such prior year, (i) the amount of gain or excess distribution allocated to
such prior year multiplied by the highest tax rate (individual or corporate) in
effect for such prior year, plus (ii) interest on the amount determined under
clause (i) for the period from the due date for filing a return for such prior
year until the date for filing a return for the year in which the gain is
recognized or the excess distribution is received, at the rates and methods
applicable to underpayments of tax for such period, and (4) the distribution by
the Fund to its shareholders of the portions of such gain or excess distribution
so allocated to prior years (net of the tax payable by the Fund thereon) will
again be taxable to the shareholders as an ordinary income dividend.

Treasury Regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) for any taxable year,
to elect (unless it has made a taxable year election for excise tax purposes as
discussed below) to treat all or any part of any net capital loss, any net
long-term capital loss or any net foreign currency loss (including, to the
extent provided in Treasury Regulations, losses recognized pursuant to the PFIC
mark-to-market election) incurred after October 31 as if it had been incurred in
the succeeding year.

In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to each of which the
Fund has not invested more than 5% of the value of the Fund's total assets in
securities of such issuer and does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security, not the issuer of the option.

If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.

Excise Tax on Regulated Investment Companies. A 4% non-deductible excise tax is
imposed on a regulated investment company that fails to distribute in each
calendar year an amount equal to 98% of its ordinary income for such calendar
year and 98% of capital gain net income for the one-year period ended on October
31 of such calendar year (or, at the election of a regulated investment company
having a taxable year ending November 30 or December 31, for its taxable year (a
"taxable year election")). The balance of such income must be distributed during
the next calendar year. For the foregoing purposes, a regulated investment
company is treated as having distributed any amount on which it is subject to
income tax for any taxable year ending in such calendar year.

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<PAGE>
For purposes of the excise tax, a regulated investment company shall: (1) reduce
its capital gain net income (but not below its net capital gain) by the amount
of any net ordinary loss for the calendar year and (2) exclude foreign currency
gains and losses and ordinary gains or losses arising as a result of a PFIC
mark-to-market election (or upon the actual disposition of the PFIC stock
subject to such election) incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).

The Fund intends to make sufficient distributions or deemed distributions of its
ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.

FUND DISTRIBUTIONS

The Fund anticipates distributing substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes. Distributions attributable to dividends received by the Fund from
domestic corporations will qualify for the 70% dividends-received deduction for
corporate shareholders only to the extent discussed below. Distributions
attributable to interest received by the Fund will not, and distributions
attributable to dividends paid by a foreign corporation generally should not,
qualify for the dividend-received deduction.

Ordinary income dividends paid by the Fund with respect to a taxable year will
qualify for the 70% dividends-received deduction generally available to
corporations (other than corporations such as S corporations, which are not
eligible for the deduction because of their special characteristics, and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
A dividend received by the Fund will not be treated as a qualifying dividend (1)
if it has been received with respect to any share of stock that the Fund has
held for less than 46 days (91 days in the case of certain preferred stock),
excluding for this purpose under the rules of Code Section 246(c)(3) and (4):
(i) any day more than 45 days (or 90 days in the case of certain preferred
stock) after the date on which the stock becomes ex-dividend and (ii) any period
during which the Fund has an option to sell, is under a contractual obligation
to sell, has made and not closed a short sale of, is the grantor of a
deep-in-the-money or otherwise nonqualified option to buy, or has otherwise
diminished its risk of loss by holding other positions with respect to, such (or
substantially identical) stock; (2) to the extent that the Fund is under an
obligation (pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property; or (3) to the
extent the stock on which the dividend is paid is treated as debt-financed under
the rules of Code Section 246A. Moreover, the dividends-received deduction for a
corporate shareholder may be disallowed or reduced (1) if the corporate
shareholder fails to satisfy the foregoing requirements with respect to its
shares of the Fund or (2) by application of Code Section 246(b) which in general
limits the dividends-received deduction to 70% of the shareholder's taxable
income (determined without regard to the dividends-received deduction and
certain other items).

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<PAGE>
The Fund may either retain or distribute to shareholders its net capital gain
for each taxable year. The Fund currently intends to distribute any such
amounts. Net capital gain that is distributed and designated as a capital gain
dividend will be taxable to shareholders as long-term capital gain, regardless
of the length of time the shareholder has held his shares or whether such gain
was recognized by the Fund prior to the date on which the shareholder acquired
his shares. The Code provides, however, that under certain conditions only 50%
(58% for alternative minimum tax purposes) of the capital gain recognized upon
the Fund's disposition of domestic "small business" stock will be subject to
tax.

Conversely, if the Fund elects to retain its net capital gain, the Fund will be
taxed thereon (except to the extent of any available capital loss carryovers) at
the 35% corporate tax rate. If the Fund elects to retain its net capital gain,
it is expected that the Fund also will elect to have shareholders of record on
the last day of its taxable year treated as if each received a distribution of
his pro rata share of such gain, with the result that each shareholder will be
required to report his pro rata share of such gain on his tax return as
long-term capital gain, will receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain, and will increase the tax basis for
his shares by an amount equal to the deemed distribution less the tax credit.

Alternative minimum tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate of
28% for non corporate taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. For purposes of the corporate AMT, the corporate dividends-received
deduction is not itself an item of tax preference that must be added back to
taxable income or is otherwise disallowed in determining a corporation's AMTI.
However, a corporate shareholder will generally be required to take the full
amount of any dividend received from the Fund into account (without a
dividends-received deduction) in determining its adjusted current earnings,
which are used in computing an additional corporate preference item (i.e., 75%
of the excess of a corporate taxpayer's adjusted current earnings over its AMTI
(determined without regard to this item and the AMT net operating loss
deduction)) includable in AMTI.

Investment income that may be received by the Fund from sources within foreign
countries may be subject to foreign taxes withheld at the source. The United
States has entered into tax treaties with many foreign countries which entitle
the Fund to a reduced rate of, or exemption from, taxes on such income. It is
impossible to determine the effective rate of foreign tax in advance since the
amount of the Fund's assets to be invested in various countries is not known. If
more than 50% of the value of the Fund's total assets at the close of its
taxable year consist of the stock or securities of foreign corporations, the
Fund may elect to "pass through" to its shareholders the amount of foreign taxes
paid by the Fund. If the Fund so elects, each shareholder would be required to
include in gross income, even though not actually received, his pro rata share
of the foreign taxes paid by the Fund, but would be treated as having paid his
pro rata share of such foreign taxes and would therefore be allowed to either
deduct such amount in computing taxable income or use such amount (subject to
various Code limitations) as a foreign tax credit against federal income tax
(but not both). For purposes of the foreign tax credit limitation rules of the
Code, each shareholder would treat as foreign source income his pro rata share
of such foreign taxes plus the portion of dividends received from the Fund
representing income derived from foreign sources. No deduction for foreign taxes
could be claimed by an individual shareholder who does not itemize deductions.
Each shareholder should consult his own tax adviser regarding the potential
application of foreign tax credits.

Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in his shares; any excess will
be treated as gain from the sale of his shares, as discussed below.

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Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional Fund shares or shares of another portfolio (or another fund).
Shareholders receiving a distribution in the form of additional shares will be
treated as receiving a distribution in an amount equal to the fair market value
of the shares received, determined as of the reinvestment date. In addition, if
the net asset value at the time a shareholder purchases shares of the Fund
reflects undistributed net investment income or recognized capital gain net
income, or unrealized appreciation in the value of the assets of the Fund,
distributions of such amounts will be taxable to the shareholder in the manner
described above, although they economically constitute a return of capital to
the shareholder.

Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such month will be deemed to have
been received by the shareholders (and made by the Fund) on December 31 of such
calendar year if such dividends are actually paid in January of the following
year. Shareholders will be advised annually as to the U.S. federal income tax
consequences of distributions made (or deemed made) during the year.

The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has failed to
provide a correct taxpayer identification number, (2) who is subject to backup
withholding for failure to properly report the receipt of interest or dividend
income, or (3) who has failed to certify to the Fund that it is not subject to
backup withholding or that it is an exempt recipient (such as a corporation).

SALE OR REDEMPTION OF SHARES

A shareholder will recognize gain or loss on the sale or redemption of shares of
the Fund in an amount equal to the difference between the proceeds of the sale
or redemption and the shareholder's adjusted tax basis in the shares. All or a
portion of any loss so recognized may be disallowed if the shareholder purchases
other shares of the Fund within 30 days before or after the sale or redemption.
In general, any gain or loss arising from (or treated as arising from) the sale
or redemption of shares of the Fund will be considered capital gain or loss and
will be long-term capital gain or loss if the shares were held for longer than
one year. However, any capital loss arising from the sale or redemption of
shares held for six months or less will be treated as a long-term capital loss
to the extent of the amount of capital gain dividends received on such shares.
For this purpose, the special holding period rules of Code section 246(c)(3) and
(4) (discussed above in connection with the dividends-received deduction for
corporations) generally will apply in determining the holding period of shares.
Capital losses in any year are deductible only to the extent of capital gains
plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.

FOREIGN SHAREHOLDERS

Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder") depends on whether the income from 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 paid to

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a foreign shareholder will be subject to U.S. withholding tax at the rate of 30%
(or lower applicable treaty rate) upon the gross amount of the dividend.
Furthermore, such foreign shareholder may be subject to U.S. withholding tax at
the rate of 30% (or lower applicable treaty rate) on the gross income resulting
from the Fund's election to treat any foreign taxes paid by it as paid by its
shareholders, but may not be allowed a deduction against this gross income or a
credit against this U.S. withholding tax for the foreign shareholder's pro rata
share of such foreign taxes which it is treated as having paid. Such foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of the Fund, capital gain dividends, and amounts
retained by the Fund that are designated as undistributed capital gains.

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.

In the case of foreign noncorporate shareholders, the Fund may be required to
withhold U.S. federal income tax at the rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.

The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund, including the
applicability of foreign taxes.

EFFECT OF FUTURE LEGISLATION; STATE AND LOCAL TAX CONSIDERATIONS

The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect.

Rules of state and local taxation of ordinary income dividends and capital gain
dividends from regulated investment companies may differ from the rules for U.S.
federal income taxation described above. Shareholders are urged to consult their
tax advisers as to the consequences of these and other state and local tax rules
affecting investment in the Fund.

CALCULATION OF PERFORMANCE DATA

For the purpose of quoting and comparing the performance of the Fund to that of
other mutual funds and to other relevant market indices in advertisements or in
reports to shareholders, performance may be stated in terms of total return.
Under the rules of the SEC ("SEC rules"), funds advertising performance must
include total return quotes calculated according to the following formula:

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n
P(l+T) = ERV

Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods or at the end of
the 1, 5 or 10 year periods (or fractional portion thereof).

Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover one, five
and ten year periods or a shorter period dating from the effectiveness of the
Fund's Registration Statement. In calculating the ending redeemable value, all
dividends and distributions by the Fund are assumed to have been reinvested at
net asset value as described in the prospectus on the reinvestment dates during
the period. Total return, or "T" in the formula above, is computed by finding
the average annual compounded rates of return over the 1, 5 and 10 year periods
(or fractional portion thereof) that would equate the initial amount invested to
the ending redeemable value. Any recurring account charges that might in the
future be imposed by the Fund would be included at that time.

The Fund may also from time to time include in such advertising a total return
figure that is not calculated according to the formula set forth above in order
to compare more accurately the performance of the Fund with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., or with the performance of the
Standard and Poor's 500 Stock Index or the Dow Jones Industrial Average, the
Fund calculates its aggregate total return for the specified periods of time
assuming the investment of $10,000 in Fund shares and assuming the reinvestment
of each dividend or other distribution at net asset value on the reinvestment
date. Percentage increases are determined by subtracting the initial value of
the investment from the ending value and by dividing the remainder by the
beginning value.

GENERAL INFORMATION

CUSTODIAN

Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York
10036 has been retained to act as the Custodian for the Fund's portfolio
securities including those to be held by foreign banks and foreign securities
depositories which qualify as eligible foreign custodians under the rules
adopted by the S.E.C. and for the Fund's domestic securities and other assets.
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02181, has been retained to act as the transfer agent and dividend disbursing
agent. Neither Chase Manhattan Bank, N.A. nor State Street Bank and Trust
Company have any part in determining the investment policies of the Fund or in
determining which portfolio securities are to be purchased or sold by the Fund
or in the declaration of dividends and distributions.

LEGAL COUNSEL

Legal matters for the Fund are passed upon by _________________________________.

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<PAGE>
INDEPENDENT AUDITORS

________________________________________________ has been selected as
independent auditors for the Fund for the fiscal year ending December 31, 2000.

OTHER INFORMATION

The Fund 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 Fund by any governmental agency. The Prospectus and this
Statement of Additional Information omit certain of the information contained in
the Fund'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.

Investors in the Fund will be kept informed of their progress through
semi-annual reports showing portfolio composition, statistical data and any
other significant data, including financial statements audited by independent
certified public accountants.

REPORTS TO SHAREHOLDERS

The fiscal year of the Fund ends on December 31. The 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.

FINANCIAL STATEMENTS

The financial statements from the Fund's December 31, 1999 Annual Report are
incorporated herein by reference. Copies of the Fund's Annual and Semi-Annual
Reports may be obtained without charge by contacting Pilgrim Funds at Suite
1200, 40 North Central Avenue, Phoenix, Arizona 85004, (800) 992-0180.

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<PAGE>
PART C OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS - LIST

The Annual Report for the year ending December 31, 1999 was filed
electronically on February 28, 2000 (as form type N-30D).

(a) FINANCIAL STATEMENTS:

Report of Independent Auditors dated February 7, 2000

Statement of Net Assets (including the Portfolio of Investments) at
December 31, 1999

Statement of Assets and Liabilities at December 31, 1999

Statement of Operations for the year ended December 31, 1999

Statement of Changes in Net Assets for the year ended December 31,
1999 and 1998

Notes to Financial Statements

Schedules II-VII and other Financial Statements, for which provisions
are made in the applicable accounting regulations of the Securities
and Exchange Commission, are omitted because they are not required
under the related instructions, they are inapplicable, or the required
information is presented in the financial statements or notes thereto.

(1) Includes the information required by Schedule I.

(2) Includes the information required by the Statement of Realized
Gain or Loss on Investments

(b) EXHIBITS:

1. Articles of Incorporation - Incorporated by reference - Filed
electronically 4/19/96

2. By-Laws - Incorporated by reference - Filed electronically -
3/3/97

3. Not Applicable

4. Rights of Holders - Filed electronically 3/2/98 - Incorporated by
reference

5. Investment Advisory Agreement between Registrant and Lexington
Management Corporation - Incorporated by reference - Filed
electronically 4/29/96

6. Distribution Agreement between Registrant and Lexington Funds
Distributor, Inc. - Filed electronically 3/3/97 - Incorporated by
reference

7. Retirement Plan for Eligible Directors - Filed electronically
3/2/98 - Incorporated by reference

8a. Custodian Agreement between Registrant and Chase Manhattan Bank,
N.A. - Incorporated by reference - Filed electronically 4/29/96

8b. Transfer Agency Agreement between the Registrant and State Street
Bank and Trust Company - Incorporated by reference - Filed
electronically 4/29/96
<PAGE>
9. Form of Administrative Services Agreement between Registrant and
Lexington Management Corporation - Filed electronically 4/29/96 -
Incorporated by reference

10. Opinion of Counsel as to Legality of Securities being registered
- Filed electronically 3/2/98 - Incorporated by reference

11. Consents

(a) Consent of Counsel -- To be filed

(b) Consent of Independent Auditors -- To be filed

12. Not Applicable

13. Not Applicable

14. Retirement Plans - Incorporated by Reference - Filed
electronically 4/29/96

15. Form of Distribution Plan Under Rule 12b-1 and Related Agreements
- Filed electronically 3/3/97 - Incorporated by reference

16. Performance Calculation - Filed electronically 3/2/98 -
Incorporated by reference

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Furnish a list or diagram of all persons directly or indirectly controlled
by or under common control with the Registrant and as to each such person
indicate (1) if a company, the state or other sovereign power under the laws of
which it is organized, (2) the percentage of voting securities owned or other
basis of control by the person, if any, immediately controlling it.

See "Management of the Fund" in the Prospectus and Statement of Additional
Information.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

State in substantially the tabular form indicated, as of a specified date
within 90 days prior to the date of filing, the number of record holders of each
class of securities of the Registrant.

The following information is given as of April 16, 2000:

Title of Class Number of Record Holders
-------------- ------------------------
Capital Stock 263
($0.001 par value)

ITEM 27. INDEMNIFICATION

State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.

Under the terms of the Maryland General Corporation Law and the Company's
By-Laws, the Company may indemnify any person who was or is a director, officer
or employee of the Company to the maximum extent permitted by the Maryland
General Corporation Law; provided, however, that Company only as authorized in
the specific case upon a determination that indemnification of such persons is
proper in the circumstances. Such determination shall be made (i) by the Board

-2-
<PAGE>
of Directors, by a majority vote of a quorum which consists of directors who are
neither "interested persons" of Company as defined in Section 2(a)(19) of the
1940 Act, nor parties to the proceeding, or (ii) if the required quorum is not
obtainable or if a quorum of such directors so directs by independent legal
counsel in a written opinion. No indemnification will be provided by the Company
to any director or officer of the Company for any liability to the Company or
Shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Describe any other business, profession, vocation or employment of a
substantial nature in which the investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.

See Prospectus Part A and Statement of Additional Information Part B
("Management of the Fund").

ITEM 29. PRINCIPAL UNDERWRITERS

(a) Lexington Money Market Trust
Lexington Growth and Income Fund, Inc.
Lexington GNMA Income Fund, Inc.
Lexington Global Income Fund
Lexington Worldwide Emerging Markets Fund, Inc.
Lexington Goldfund, Inc.
Lexington Global Corporate Leaders Fund, Inc.
Lexington Natural Resources Trust
Lexington Corporate Leaders Trust Fund
Lexington Silver Fund, Inc.
Lexington International Fund, Inc.
Lexington Emerging Markets Fund, Inc.
Lexington Small Cap Asia Growth Fund, Inc.
Lexington Troika Dialog Russia Fund, Inc.
Lexington Global Technology Fund, Inc.

(b)

Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
---------------- ----------- ----------
Peter Corniotes* Assistant Secretary Asst. Secretary

Lisa A. Curcio* Vice President and Secretary Vice President and
Secretary

Robert M. DeMichele* Chief Executive Officer Chairman of the Board
and Chairman and President

Richard M. Hisey* Chief Financial Officer, Vice President and
Managing Director & Director Chief Financial Officer

Richard Lavery* Vice President Vice President

Janice McInerney* Assistant Treasurer None

- ----------
* P.O. Box 1515
Saddle Brook, New Jersey 07663

-3-
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act and the Rules (17 CFR 270, 31a-1 to
31a-3) promulgated thereunder, furnish the name and addressof each person
maintaining physical possession of each such account, book or other document.

The Registrant, Lexington International Fund, Park 80 West -Plaza Two,
Saddle Brook, New Jersey 07663 will maintain physical possession of each such
account, book or other document of the Company, except for those maintained by
the Registrant's Custodian, Chase Manhattan Bank, N.A., 121 Sixth Avenue, New
York, New York 10036, or Transfer Agent, State Street Bank and Trust Company,c/o
National Financial Data Services, 1004 Baltimore, Kansas City, Missouri 64105.

ITEM 31. MANAGEMENT SERVICES

Furnish a summary of the substantive provisions of any management-related
service contract not discussed in Part A or B of this Form (because the contract
was not believed to be material to a purchaser of securities of the Registrant)
under which services are provided to the Registrant, indicating the parties to
the contract, the total dollars paid and by whom for the last three fiscal
years.

None.

ITEM 32. UNDERTAKINGS

The Registrant, Lexington International Fund, Inc., undertakes to furnish a
copy of the Fund's latest annual report, upon request and without charge, to
every person to whom a prospectus is delivered.

The Registrant will hold a meeting of its public shareholders, if requested
to do so by the holders of at least 10 percent of the Registrant's outstanding
shares, to call a meeting of shareholders for the purpose of voting upon the
question of removal of a director or directors and to assist in communications
with other shareholders.

4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Amendment to
be signed on its behalf by the Undersigned, thereunto duly authorized, in the
City of Saddle Brook and State of New Jersey, on the 26th day of May, 2000.

LEXINGTON INTERNATIONAL FUND, INC.

/s/ Robert M. DeMichele
----------------------------------------
By Robert M. DeMichele
Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacities and on the
dates indicated.

Signature Title Date
- --------- ----- ----

/s/ Robert M. DeMichele Chairman of the Board May 26, 2000
- ----------------------------- Principal Executive
Robert M. DeMichele Officer

/s/ Richard M. Hisey Principal Financial and May 26, 2000
- ----------------------------- Accounting
Richard M. Hisey

/s/ Lisa Curcio Principal Compliance May 26, 2000
- -----------------------------
Lisa Curcio

*SMS Chadha Director May 26, 2000
- -----------------------------
SMS Chadha

*Beverley C. Duer, P.E. Director May 26, 2000
- -----------------------------
Beverley C. Duer, P.E.

*Barbara R. Evans Director May 26, 2000
- -----------------------------
Barbara R. Evans

*Jerard F. Maher Director May 26, 2000
- -----------------------------
Jerard F. Maher

*Andrew M. McCosh Director May 26, 2000
- -----------------------------
Andrew M. McCosh

*Donald B. Miller Director May 26, 2000
- -----------------------------
Donald B. Miller

*Allen H. Stowe Director May 26, 2000
- -----------------------------
Allen H. Stowe

*By: /s/ Lisa Curcio
------------------------
Lisa Curcio
Attorney-in-Fact

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