Document:

Exhibit 4(B)

                  FORM OF AGREEMENT AND PLAN OF REORGANIZATION

     THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____ day of _____________, 2001, by and between Pilgrim Mutual Funds, a
Delaware business trust (the "Trust") with its principal place of business at
7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258, on behalf of its
series, Pilgrim Emerging Countries Fund (the "Acquiring Fund"), and Worldwide
Emerging Markets Fund, Inc., a corporation (the "Company") organized under the
laws of the state of Maryland with its principal place of business at 7337 E.
Doubletree Ranch Road, Scottsdale, Arizona 85258, on behalf of its sole series,
the Pilgrim Worldwide Emerging Markets Fund (the "Acquired Fund").

     This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for Class A voting shares
of beneficial interest (no par value per share) of the Acquiring Fund (the
"Acquiring Fund Shares"), the assumption by the Acquiring Fund of all
liabilities of the Acquired Fund, and the distribution of the Acquiring Fund
Shares to the shareholders of the Acquired Fund in complete liquidation of the
Acquired Fund as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.

     WHEREAS, the Acquired Fund and the Acquiring Fund are open-end, registered
investment companies of the management type or a series thereof and the Acquired
Fund owns securities which generally are assets of the character in which the
Acquiring Fund is permitted to invest;

     WHEREAS, the Trustees of the Trust have determined that the exchange of all
of the assets of the Acquired Fund for Acquiring Fund Shares and the assumption
of all liabilities of the Acquired Fund by the Acquiring Fund is in the best
interests of the Acquiring Fund and its shareholders and that the interests of
the existing shareholders of the Acquiring Fund would not be diluted as a result
of this transaction; and

     WHEREAS, the Directors of the Company, have determined that the exchange of
all of the assets of the Acquired Fund for Acquiring Fund Shares and the
assumption of all liabilities of the Acquired Fund by the Acquiring Fund is in
the best interests of the Acquired Fund and its shareholders and that the
interests of the existing shareholders of the Acquired Fund would not be diluted
as a result of this transaction;

     NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:

1.   TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
     FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND
     LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND

     1.1 Subject to the requisite approval of the Acquired Fund shareholders and
the other terms and conditions herein set forth and on the basis of the
representations and warranties contained herein, the Acquired Fund agrees to
transfer all of the Acquired Fund's assets, as set forth in paragraph 1.2, to
the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor: (i) to
deliver to the Acquired Fund the number of full and fractional Class A Acquiring
Fund Shares determined by dividing the value of the Acquired Fund's net assets
with respect to each class, computed in the manner and as of the time and date
set forth in paragraph 2.1, by the net asset value of one Acquiring Fund Share
of the same class, computed in the manner and as of the time and date set forth
in paragraph 2.2; and (ii) to assume all liabilities of the Acquired Fund as set
forth in paragraph 1.3. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing").

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     1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all assets and property, including, without limitation, all
cash, securities, commodities and futures interests and dividends or interests
receivable that are owned by the Acquired Fund and any deferred or prepaid
expenses shown as an asset on the books of the Acquired Fund on the closing date
provided for in paragraph 3.1 (the "Closing Date") (collectively, "Assets").

     1.3 The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund shall
also assume all of the liabilities of the Acquired Fund, whether accrued or
contingent, known or unknown, existing at the Valuation Date (collectively,
"Liabilities"). On or as soon as practicable prior to the Closing Date, the
Acquired Fund will declare and pay to its shareholders of record one or more
dividends and/or other distributions so that it will have distributed
substantially all (and in no event less than 98%) of its investment company
taxable income (computed without regard to any deduction for dividends paid) and
realized net capital gain, if any, for the current taxable year through the
Closing Date.

     1.4 Immediately after the transfer of assets provided for in paragraph 1.1,
the Acquired Fund will distribute to the Acquired Fund's shareholders of record
with respect to Class A shares, determined as of immediately after the close of
business on the Closing Date (the "Acquired Fund Shareholders"), on a pro rata
basis within that class, the Acquiring Fund Shares of the same class received by
the Acquired Fund pursuant to paragraph 1.1, and will completely liquidate. Such
distribution and liquidation will be accomplished, with respect to each class of
the Acquired Fund's shares, by the transfer of the Acquiring Fund Shares then
credited to the account of the Acquired Fund on the books of the Acquiring Fund
to open accounts on the share records of the Acquiring Fund in the names of the
Acquired Fund Shareholders. The aggregate net asset value of Class A Acquiring
Fund Shares to be so credited to Class A Acquired Fund Shareholders shall be
equal to the aggregate net asset value of the Acquired Fund shares of that same
class owned by such shareholders on the Closing Date. All issued and outstanding
shares of the Acquired Fund will simultaneously be canceled on the books of the
Acquired Fund, although share certificates representing interests in Class A
shares of the Acquired Fund will represent a number of the same class of
Acquiring Fund Shares after the Closing Date, as determined in accordance with
Section 2.3. The Acquiring Fund shall not issue certificates representing the
Class A Acquiring Fund Shares in connection with such exchange.

     1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent.

     1.6 Any reporting responsibility of the Acquired Fund including, but not
limited to, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.

2.   VALUATION

     2.1 The value of the Assets shall be the value of such assets computed as
of immediately after the close of business of the New York Stock Exchange and
after the declaration of any dividends on the Closing Date (such time and date
being hereinafter called the "Valuation Date"), using the valuation procedures
in the then-current prospectus and statement of additional information with
respect to the Acquiring Fund, and valuation procedures established by the
Acquiring Fund's Board of Trustees.

     2.2 The net asset value of a Class A Acquiring Fund Share shall be the net
asset value per share computed with respect to that class as of the Valuation
Date, using the valuation procedures set forth in the Acquiring Fund's
then-current prospectus and statement of additional information with respect to
the Acquiring Fund, and valuation procedures established by the Acquiring Fund's
Board of Trustees.

     2.3 The number of the Class A Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's assets shall be
determined with respect to each such class by dividing the value of the net

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assets with respect to the Class A shares of the Acquired Fund, as the case may
be, determined using the same valuation procedures referred to in paragraph 2.1,
by the net asset value of an Acquiring Fund Share, determined in accordance with
paragraph 2.2.

     2.4 All computations of value shall be made by the Acquired Fund's
designated record keeping agent and shall be subject to confirmation by the
Acquiring Fund's record keeping agent and by each Fund's respective independent
accountants.

3.   CLOSING AND CLOSING DATE

     3.1 The Closing Date shall be _____ ___, 2001, or such other date as the
parties may agree to in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of immediately after the close of
business on the Closing Date unless otherwise agreed to by the parties. The
close of business on the Closing Date shall be as of 4:00 p.m., Eastern Time.
The Closing shall be held at the offices of the Acquiring Fund or at such other
time and/or place as the parties may agree.

     3.2 The Acquired Fund shall direct Brown Brothers Harriman & Co. as
custodian for the Acquired Fund (the "Custodian"), to deliver, at the Closing, a
certificate of an authorized officer stating that (i) the Assets shall have been
delivered in proper form to the Acquiring Fund within two business days prior to
or on the Closing Date, and (ii) all necessary taxes in connection with the
delivery of the Assets, including all applicable federal and state stock
transfer stamps, if any, have been paid or provision for payment has been made.
The Acquired Fund's portfolio securities represented by a certificate or other
written instrument shall be presented by the Acquired Fund Custodian to the
custodian for the Acquiring Fund for examination no later than five business
days preceding the Closing Date, and shall be transferred and delivered by the
Acquired Fund as of the Closing Date for the account of the Acquiring Fund duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof. The Custodian shall deliver as of the Closing Date by book
entry, in accordance with the customary practices of any securities depository,
as defined in Rule 17f-4 under the Investment Company Act of 1940, as amended
(the "1940 Act"), in which the Acquired Fund's Assets are deposited and the
Custodian, the Acquired Fund's Assets deposited with such depositories. The cash
to be transferred by the Acquired Fund shall be delivered by wire transfer of
federal funds on the Closing Date.

     3.3 The Acquired Fund shall direct DST Systems, Inc. (the "Transfer
Agent"), on behalf of the Acquired Fund, to deliver at the Closing a certificate
of an authorized officer stating that its records contain the names and
addresses of the Acquired Fund Shareholders and the number and percentage
ownership of outstanding Class A shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver a
confirmation evidencing the Acquiring Fund Shares to be credited on the Closing
Date to the Secretary of the Acquiring Fund, or provide evidence satisfactory to
the Acquired Fund that such Acquiring Fund Shares have been credited to the
Acquired Fund's account on the books of the Acquiring Fund. At the Closing each
party shall deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request.

     3.4 In the event that on the Valuation Date (a) the New York Stock Exchange
or another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund, respectively, shall be closed to trading or trading
thereupon shall be restricted, or (b) trading or the reporting of trading on
such Exchange or elsewhere shall be disrupted so that, in the judgment of the
Board of Directors of the Acquired Fund or the Board of Trustees of the
Acquiring Fund, accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed and reporting shall have been restored.

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4.   REPRESENTATIONS AND WARRANTIES

     4.1 Except has been disclosed to the Acquiring Fund in a written instrument
executed by an officer of the Company, the Company, on behalf of the Acquired
Fund, represents and warrants to the Trust as follows:

     (a) The Acquired Fund is a series of the Company, which is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Maryland with power under its Articles of Incorporation to own all of
its properties and assets and to carry on its business as it is now being
conducted;

     (b) The Acquired Fund is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act, and the registration of
shares of the Acquired Fund under the Securities Act of 1933, as amended ("1933
Act"), is in full force and effect;

     (c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act")
and the 1940 Act and such as may be required by state securities laws;

     (d) The current prospectus and statement of additional information of the
Acquired Fund and each prospectus and statement of additional information of the
Acquired Fund used during the three years previous to the date of this Agreement
conforms or conformed at the time of its use in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and does not or did not at the time of
its use include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading;

     (e) On the Closing Date, the Acquired Fund will have good and marketable
title to the Assets and full right, power, and authority to sell, assign,
transfer and deliver such Assets hereunder free of any liens or other
encumbrances, and upon delivery and payment for such Assets, the Acquiring Fund
will acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under the
1933 Act, other than as disclosed to the Acquiring Fund;

     (f) The Acquired Fund is not engaged currently, and the execution, delivery
and performance of this Agreement will not result, in (i) a material violation
of the Company's Articles of Incorporation or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Company, on behalf of the Acquired Fund, is a party or by which it is bound, or
(ii) the acceleration of any obligation, or the imposition of any penalty, under
any agreement, indenture, instrument, contract, lease, judgment or decree to
which the Company, on behalf of the Acquired Fund, is a party or by which it is
bound;

     (g) All material contracts or other commitments of the Acquired Fund (other
than this Agreement and certain investment contracts including options, futures,
and forward contracts) will terminate without liability to the Acquired Fund on
or prior to the Closing Date;

     (h) Except as otherwise disclosed in writing to and accepted by the Trust
on behalf of the Acquiring Fund, no litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or, to its knowledge, threatened against the Acquired Fund or any of its
properties or assets that, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its business. The
Company, on behalf of the Acquired Fund, knows of no facts which might form the
basis for the institution of such proceedings and is not a party to or subject
to the provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;

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     (i) The Statement of Assets and Liabilities, Statements of Operations and
Changes in Net Assets, and Schedule of Investments of the Acquired Fund at
December 31, 1999, have been audited by KPMG LLP, independent accountants, and
are in accordance with generally accepted accounting principles ("GAAP")
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) present fairly, in all material respects, the financial
condition of the Acquired Fund as of such date in accordance with GAAP, and
there are no known contingent liabilities of the Acquired Fund required to be
reflected on a balance sheet (including the notes thereto) in accordance with
GAAP as of such date not disclosed therein;

     (j) Since December 31, 1999, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund. For the purposes of this subparagraph (j), a
decline in net asset value per share of the Acquired Fund due to declines in
market values of securities in the Acquired Fund's portfolio, the discharge of
Acquired Fund liabilities, or the redemption of Acquired Fund Shares by
shareholders of the Acquired Fund shall not constitute a material adverse
change;

     (k) On the Closing Date, all Federal and other tax returns, dividend
reporting forms, and other tax-related reports of the Acquired Fund required by
law to have been filed by such date (including any extensions) shall have been
filed and are or will be correct in all material respects, and all Federal and
other taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge, no such return is
currently under audit and no assessment has been asserted with respect to such
returns;

     (l) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met (or will meet) the
requirements of Subchapter M of the Code for qualification as a regulated
investment company, has been (or will be) eligible to and has computed (or will
compute) its federal income tax under Section 852 of the Code, and will have
distributed all of its investment company taxable income and net capital gain
(as defined in the Code) that has accrued through the Closing Date, and before
the Closing Date will have declared dividends sufficient to distribute all of
its investment company taxable income and net capital gain for the period ending
on the Closing Date;

     (m) All issued and outstanding shares of the Acquired Fund are, and on the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable and have been offered and sold in every state and the District of
Columbia in compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws. All of the issued and
outstanding shares of the Acquired Fund will, at the time of Closing, be held by
the persons and in the amounts set forth in the records of the Transfer Agent,
on behalf of the Acquired Fund, as provided in paragraph 3.3. The Acquired Fund
does not have outstanding any options, warrants or other rights to subscribe for
or purchase any of the shares of the Acquired Fund, nor is there outstanding any
security convertible into any of the Acquired Fund shares;

     (n) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action, if any,
on the part of the Directors of the Company, on behalf of the Acquired Fund,
and, subject to the approval of the shareholders of the Acquired Fund, this
Agreement will constitute a valid and binding obligation of the Acquired Fund,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;

     (o) The information to be furnished by the Acquired Fund for use in
registration statements, proxy materials and other documents filed or to be
filed with any federal, state or local regulatory authority (including the
National Association of Securities Dealers, Inc.), which may be necessary in
connection with the transactions contemplated hereby, shall be accurate and

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complete in all material respects and shall comply in all material respects with
Federal securities and other laws and regulations thereunder applicable thereto;
and

     (p) The proxy statement of the Acquired Fund (the "Proxy Statement") to be
included in the Registration Statement referred to in paragraph 5.6, insofar as
it relates to the Acquired Fund, will, on the effective date of the Registration
Statement and on the Closing Date (i) not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not materially misleading provided, however,
that the representations and warranties in this subparagraph (p) shall not apply
to statements in or omissions from the Proxy Statement and the Registration
Statement made in reliance upon and in conformity with information that was
furnished by the Acquiring Fund for use therein, and (ii) comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and
the rules and regulations thereunder.

     4.2 Except has been disclosed to the Acquired Fund in a written instrument
executed by an officer of the Trust, the Trust, on behalf of the Acquiring Fund,
represents and warrants to the Company as follows:

     (a) The Acquiring Fund is a series of the Trust, which is a business trust
duly organized, validly existing and in good-standing under the laws of the
State of Delaware with power under the Trust's Declaration of Trust to own all
of its properties and assets and to carry on its business as it is now being
conducted;

     (b) the Trust is a registered investment company classified as a management
company of the open-end type, and its registration with the Commission as an
investment company under the 1940 Act and the registration of shares of the
Acquiring Fund under the 1933 Act, is in full force and effect;

     (c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required by state
securities laws;

     (d) The current prospectus and statement of additional information of the
Acquiring Fund and each prospectus and statement of additional information of
the Acquiring Fund used during the three years previous to the date of this
Agreement conforms or conformed at the time of its use in all material respects
to the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the Commission thereunder and does not or did not at the time
of its use include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading;

     (e) On the Closing Date, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets, free of any liens of other encumbrances,
except those liens or encumbrances as to which the Acquired Fund has received
notice and necessary documentation at or prior to the Closing;

     (f) The Acquiring Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in (i) a material
violation of the Trust's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the Trust,
on behalf of the Acquiring Fund, is a party or by which it is bound, or (ii) the
acceleration of any obligation, or the imposition of any penalty, under any
agreement, indenture, instrument, contract, lease, judgment or decree to which
the Trust, on behalf of the Acquiring Fund, is a party or by which it is bound;

     (g) Except as otherwise disclosed in writing to and accepted by the
Company, on behalf of the Acquired Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or, to its knowledge, threatened against the Trust, on behalf

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of the Acquiring Fund, or any of the Acquiring Fund's properties or assets that,
if adversely determined, would materially and adversely affect the Acquiring
Fund's financial condition or the conduct of its business. The Trust, on behalf
of the Acquiring Fund, knows of no facts which might form the basis for the
institution of such proceedings and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects the Acquiring Fund's business or its
ability to consummate the transactions herein contemplated;

     (h) The Statement of Assets and Liabilities, Statements of Operations and
Changes in Net Assets and Schedule of Investments of the Acquiring Fund at June
30, 2000, have been audited by KPMG LLP, independent accountants, and are in
accordance with GAAP consistently applied, and such statements (copies of which
have been furnished to the Acquired Fund) present fairly, in all material
respects, the financial condition of the Acquiring Fund as of such date in
accordance with GAAP, and there are no known contingent liabilities of the
Acquiring Fund required to be reflected on a balance sheet (including the notes
thereto) in accordance with GAAP as of such date not disclosed therein;

     (i) Since June 30, 2000, there has not been any material adverse change in
the Acquiring Fund's financial condition, assets, liabilities or business, other
than changes occurring in the ordinary course of business, or any incurrence by
the Acquiring Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed to and accepted by
the Acquired Fund. For purposes of this subparagraph (i), a decline in net asset
value per share of the Acquiring Fund due to declines in market values of
securities in the Acquiring Fund's portfolio, the discharge of Acquiring Fund
liabilities, or the redemption of Acquiring Fund Shares by shareholders of the
Acquiring Fund, shall not constitute a material adverse change;

     (j) On the Closing Date, all Federal and other tax returns, dividend
reporting forms, and other tax-related reports of the Acquiring Fund required by
law to have been filed by such date (including any extensions) shall have been
filed and are or will be correct in all material respects, and all Federal and
other taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof, and to the best of the Acquiring Fund's knowledge no such return is
currently under audit and no assessment has been asserted with respect to such
returns;

     (k) For each taxable year of its operation (including the taxable year
including the Closing Date), the Acquiring Fund has met (or will meet) the
requirements of Subchapter M of the Code for qualification as a regulated
investment company, has been eligible to and has computed (or will compute) its
federal income tax under Section 852 of the Code, and has distributed all of its
investment company taxable income and net capital gain (as defined in the Code)
for periods ending prior to the Closing Date, and will do so for the taxable
year including the Closing Date;

     (l) All issued and outstanding Acquiring Fund Shares are, and on the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable by the Trust and have been offered and sold in every state and
the District of Columbia in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws. The
Acquiring Fund does not have outstanding any options, warrants or other rights
to subscribe for or purchase any Acquiring Fund Shares, nor is there outstanding
any security convertible into any Acquiring Fund Shares;

     (m) The execution, delivery and performance of this Agreement will have
been fully authorized prior to the Closing Date by all necessary action, if any,
on the part of the Trustees of the Trust, on behalf of the Acquiring Fund, and
this Agreement will constitute a valid and binding obligation of the Acquiring
Fund, enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;

     (n) The Class A Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to

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the terms of this Agreement, will on the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable by the Trust;

     (o) The information to be furnished by the Trust for use in the
registration statements, proxy materials and other documents that may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations applicable
thereto; and

     (p) That insofar as it relates to the Acquiring Fund, the Registration
Statement relating to the Acquiring Fund Shares issuable hereunder, and the
proxy materials of the Acquired Fund to be included in the Registration
Statement, and any amendment or supplement to the foregoing, will, from the
effective date of the Registration Statement through the date of the meeting of
shareholders of the Acquired Fund contemplated therein (i) not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading provided,
however, that the representations and warranties in this subparagraph (p) shall
not apply to statements in or omissions from the Registration Statement made in
reliance upon and in conformity with information that was furnished by the
Acquired Fund for use therein, and (ii) comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder.

5.   COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND

     5.1 The Acquiring Fund and the Acquired Fund each will operate its business
in the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include the declaration
and payment of customary dividends and distributions, and any other distribution
that may be advisable.

     5.2 The Acquired Fund will call a meeting of the shareholders of the
Acquired Fund to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.

     5.3 The Acquired Fund covenants that the Class A Acquiring Fund Shares to
be issued hereunder are not being acquired for the purpose of making any
distribution thereof, other than in accordance with the terms of this Agreement.

     5.4 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares.

     5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.

     5.6 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement referred to in paragraph 4.1(p), all to
be included in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the 1934 Act and the
1940 Act, in connection with the meeting of the shareholders of the Acquired
Fund to consider approval of this Agreement and the transactions contemplated
herein.

     5.7 As soon as is reasonably practicable after the Closing, the Acquired
Fund will make a liquidating distribution to its shareholders consisting of the
Class A Acquiring Fund Shares received at the Closing.

                                       8
<PAGE>
     5.8 The Acquiring Fund and the Acquired Fund shall each use its reasonable
best efforts to fulfill or obtain the fulfillment of the conditions precedent to
effect the transactions contemplated by this Agreement as promptly as
practicable.

     5.9 The Company, on behalf of the Acquired Fund, covenants that the Company
will, from time to time, as and when reasonably requested by the Trust, on
behalf of the Acquiring Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action as the Trust may reasonably deem necessary or
desirable in order to vest in and confirm (a) the Company's, on behalf of the
Acquired Fund's, title to and possession of the Acquiring Fund Shares to be
delivered hereunder, and (b) the Trust's, on behalf of the Acquiring Fund's,
title to and possession of all the assets and otherwise to carry out the intent
and purpose of this Agreement.

     5.10 The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state blue sky or securities laws as may be necessary in order to continue
its operations after the Closing Date.

6.   CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND

     The obligations of the Company to consummate the transactions provided for
herein shall be subject, at the Company's election, to the performance by the
Trust, on behalf of the Acquiring Fund, of all the obligations to be performed
by it hereunder on or before the Closing Date, and, in addition thereto, the
following further conditions:

     6.1 All representations and warranties of the Trust, on behalf of the
Acquiring Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date;

     6.2 The Trust shall have delivered to the Company a certificate executed in
its name by its President or Vice President and its Treasurer or Assistant
Treasurer, in a form reasonably satisfactory to the Company and dated as of the
Closing Date, to the effect that the representations and warranties of the
Trust, on behalf of the Acquiring Fund, made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement and as to such other matters as the
Company shall reasonably request;

     6.3 The Trust, on behalf of the Acquiring Fund, shall have performed all of
the covenants and complied with all of the provisions required by this Agreement
to be performed or complied with by the Trust, on behalf of the Acquiring Fund,
on or before the Closing Date; and

     6.4 The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each Class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1.

7.   CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND

     The obligations of the Trust, on behalf of the Acquiring Fund, to complete
the transactions provided for herein shall be subject, at the Trust's election
to the performance by the Company, on behalf of the Acquired Fund, of all of the
obligations to be performed by it hereunder on or before the Closing Date and,
in addition thereto, the following conditions:

     7.1 All representations and warranties of the Company, on behalf of the
Acquired Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by

                                       9
<PAGE>
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date;

     7.2 The Company shall have delivered to the Acquiring Fund a statement of
the Company's assets and liabilities, as of the Closing Date, certified by the
Treasurer of the Company;

     7.3 The Company shall have delivered to the Acquiring Fund on the Closing
Date a certificate executed in its name by its President or Vice President and
its Treasurer or Assistant Treasurer, in form and substance satisfactory to the
Trust and dated as of the Closing Date, to the effect that the representations
and warranties of the Company, on behalf of the Acquired Fund, made in this
Agreement are true and correct at and as of the Closing Date, except as they may
be affected by the transactions contemplated by this Agreement, and as to such
other matters as the Trust shall reasonably request;

     7.4 The Company, on behalf of the Acquired Fund, shall have performed all
of the covenants and complied with all of the provisions required by this
Agreement to be performed or complied with by the Company, on behalf of the
Acquired Fund, on or before the Closing Date;

     7.5 The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each Class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1;

     7.6 The Acquired Fund shall have declared and paid a distribution or
distributions prior to the Closing that, together with all previous
distributions, shall have the effect of distributing to its shareholders (i) all
of its investment company taxable income and all of its net realized capital
gains, if any, for the period from the close of its last fiscal year to 4:00
p.m. Eastern time on the Closing; and (ii) any undistributed investment company
taxable income and net realized capital gains from any period to the extent not
otherwise already distributed.

8.   FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
     ACQUIRED FUND

     If any of the conditions set forth below have not been satisfied on or
before the Closing Date with respect to the Company, on behalf of the Acquired
Fund, or the Trust, on behalf of the Acquiring Fund, the other party to this
Agreement shall, at its option, not be required to consummate the transactions
contemplated by this Agreement:

     8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Company's Articles of
Incorporation, By-Laws, applicable Maryland law and the 1940 Act, and certified
copies of the resolutions evidencing such approval shall have been delivered to
the Acquiring Fund. Notwithstanding anything herein to the contrary, neither the
Trust nor the Company may waive the conditions set forth in this paragraph 8.1;

     8.2 On the Closing Date no action, suit or other proceeding shall be
pending or, to its knowledge, threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain damages or other relief
in connection with, this Agreement or the transactions contemplated herein;

     8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Trust or the Company to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a risk of
a material adverse effect on the assets or properties of the Acquiring Fund or
the Acquired Fund, provided that either party hereto may for itself waive any of
such conditions;

                                       10
<PAGE>
     8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and

     8.5 The parties shall have received the opinion of Dechert addressed to the
Company and the Trust substantially to the effect that, based upon certain
facts, assumptions, and representations, the transaction contemplated by this
Agreement shall constitute a tax-free reorganization for Federal income tax
purposes. The delivery of such opinion is conditioned upon receipt by Dechert of
representations it shall request of the Trust and the Company. Notwithstanding
anything herein to the contrary, neither the Trust nor the Company may waive the
condition set forth in this paragraph 8.5.

9.   BROKERAGE FEES AND EXPENSES

     9.1 The Trust, on behalf of the Acquiring Fund, and the Company, on behalf
of the Acquired Fund, represent and warrant to each other that there are no
brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.

     9.2 The expenses relating to the proposed Reorganization will be shared so
that (1) half of such costs are borne by the investment adviser to the Acquired
and Acquiring Funds, and (2) half are borne by the Acquiring Fund and the
Acquired Fund and will be paid by the Acquired Fund and Acquiring Fund pro rata
based upon the relative net assets of the Acquiring Fund and the Acquired Fund
as of the close of business on the record date for determining the shareholders
of the Acquired Fund entitled to vote on the Reorganization. The costs of the
Reorganization shall include, but not be limited to, costs associated with
obtaining any necessary order of exemption from the 1940 Act, preparation of the
Registration Statement, printing and distributing the Acquiring Fund's
prospectus and the Acquired Fund's proxy materials, legal fees, accounting fees,
securities registration fees, and expenses of holding shareholders' meetings.
Notwithstanding any of the foregoing, expenses will in any event be paid by the
party directly incurring such expenses if and to the extent that the payment by
another person of such expenses would result in the disqualification of such
party as a "regulated investment company" within the meaning of Section 851 of
the Code.

10.  ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES

     10.1 The Trust and the Company agree that neither party has made any
representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.

     10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing shall survive the Closing.

11.  TERMINATION

     This Agreement and the transactions contemplated hereby may be terminated
and abandoned by resolution of the Board of Directors of the Acquired Fund or
the Board of Trustees of the Acquiring Fund at any time prior to the Closing
Date, if circumstances should develop that, in the opinion of the Board, make
proceeding with the Agreement inadvisable.

                                       11
<PAGE>
12.      AMENDMENTS

     This Agreement may be amended, modified or supplemented in such manner as
may be deemed necessary or advisable by the authorized officers of the Company
and the Trust; provided, however, that following the meeting of the shareholders
of the Acquired Fund called by the Acquired Fund pursuant to paragraph 5.2 of
this Agreement, no such amendment may have the effect of changing the provisions
for determining the number of the Class A Acquiring Fund Shares to be issued to
the Acquired Fund Shareholders under this Agreement to the detriment of such
shareholders without their further approval.

13.      NOTICES

     Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by
facsimile, personal service or prepaid or certified mail addressed to the Trust
or to the Company, 7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258,
attn: James M. Hennessy, in each case with a copy to Dechert, 1775 Eye Street,
N.W., Washington, D.C. 20006, attn: Jeffrey S. Puretz.

14.  HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY

     14.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

     14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.

     14.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to its principles of conflicts
of laws.

     14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.

     14.5 It is expressly agreed that the obligations of the parties hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents, or employees of the Trust personally, but shall bind only the trust
property of the Acquiring Fund, as provided in the Declaration of Trust of the
Trust. The execution and delivery by such officers shall not be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Acquiring Fund as
provided in the Declaration of Trust of the Trust.

                                       12
<PAGE>
     IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.

                                      PILGRIM MUTUAL FUNDS, on behalf of its
Attest:                               PILGRIM EMERGING COUNTRIES FUND series
_______________________________
SECRETARY                             By: _______________________________
                                      Its: ______________________________

                                      PILGRIM WORLDWIDE EMERGING MARKETS FUND,
                                      INC., on behalf of its sole series,
                                      PILGRIM WORLDWIDE EMERGING MARKETS FUND
Attest:
_______________________________
SECRETARY                             By: _______________________________
                                      Its: ______________________________

                                       13NORTHERN FOOD & DAIRY, INC.

                            FINANCIAL STATEMENTS AND
                          INDEPENDENT AUDITOR'S REPORT

                           December 31, 1999 and 1998

<PAGE>

                           NORTHERN FOOD & DAIRY, INC.
                           December 31, 1999 and 1998

                                      INDEX

                                                                          Page
                                                                          ----
INDEPENDENT AUDITOR'S REPORT                                                3

PART I - FINANCIAL STATEMENTS

        Balance Sheets                                                      5

        Statements of Income and Comprehensive Income                       6

        Statements of Stockholders' Equity                                  7

        Statements of Cash Flows                                            8

        Notes to Financial Statements                                     9 - 16

PART II - ADDITIONAL INFORMATION

        INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL
         INFORMATION                                                       18

        Schedules of Cost of Sales                                         19

        Schedules of General and Administrative Expenses                   20

<PAGE>

                           NORTHERN FOOD & DAIRY, INC.

                          AUDITED FINANCIAL STATEMENTS

                           December 31, 1999 and 1998

                                     PART I
<PAGE>

          [LETTERHEAD OF FROEHLING, ANDERSON, PLOWMAN & WASMUTH LTD.]

                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Northern Food & Dairy, Inc.
Alexandria, Minnesota

We have audited the accompanying balance sheets of Northern Food & Dairy, Inc.
(an S corporation) as of December 31, 1999 and 1998 and the related statements
of income and comprehensive income, stockhoders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Northern Food & Dairy, Inc. as
of December 31, 1999 and 1998, and the results of its operations and cash flows
for the years then ended, in conformity with generally accepted accounting
principles.

/s/ Froehling, Anderson, Plowman & Wasmuth, Ltd.

Minnetonka, Minnesota
February 24, 2000

<PAGE>

                           NORTHERN FOOD & DAIRY, INC.
                                 BALANCE SHEETS
                           December 31, 1999 and 1998

                                                           1999          1998
                                                       -----------   -----------
ASSETS

CURRENT ASSETS
   Cash                                                $    12,962   $     1,886
   Marketable securities                                   115,202        34,360
   Accounts receivable, less allowance for doubtful
    accounts of $10,000                                  3,166,927     2,311,900
   Other receivables                                        32,102        16,775
   Inventories                                           1,304,707     1,516,720
   Prepaid expenses                                          3,970        23,562
   Note receivable, current portion                                       82,364
                                                       -----------   -----------
      Total Current Assets                               4,635,870     3,987,567

PROPERTY AND EQUIPMENT
   Land                                                    145,713       145,713
   Leasehold improvements                                  327,210
   Buildings                                             2,752,121     2,591,312
   Equipment                                             7,122,860     6,875,501
   Furniture and fixtures                                  355,418       173,249
   Vehicles                                                237,892       177,321
   Equipment deposits                                       15,160         3,394
   Construction in progress                              1,774,464       516,156
                                                       -----------   -----------
                                                        12,730,838    10,482,646
   Less: accumulated depreciation                        5,919,113     5,212,820
                                                       -----------   -----------
      Property and Equipment - Net                       6,811,725     5,269,826

OTHER ASSETS

   Loan origination fees                                    13,615
                                                       -----------   -----------
         Total Assets                                  $11,461,210   $ 9,257,393
                                                       ===========   ===========

               See Accompanying Notes to Financial Statements and
                          Independent Auditor's Report.
<PAGE>

Balance Sheet (continued)

<TABLE>
<CAPTION>
                                                             1999          1998
                                                         -----------   -----------
<S>                                                      <C>           <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Note payable - bank                                                 $   801,439
   Note payable - customer                               $    59,020        75,000
   Current portion of notes payable and capital
    lease obligations                                        674,785       474,853
   Bank overdraft                                            577,863       191,029
   Accounts payable                                        3,424,468     3,164,688
   Customer deposits                                                        75,000
   Accrued wages and vacation                                282,408       188,904
   Accrued interest                                            1,165         6,535
   Accrued property taxes                                     53,055        53,115
   Accrued other                                              32,049        16,470
                                                         -----------   -----------
      Total Current Liabilities                            5,104,813     5,047,033

LONG-TERM LIABILITIES
   Notes payable and capital lease obligations, net
    of current portion shown above                         3,119,039     1,161,705
                                                         -----------   -----------
         Total Liabilities                                 8,223,852     6,208,738

STOCKHOLDERS' EQUITY
   Common stock, $10 par value; 2,500 shares
    authorized; 1,000 shares issued and outstanding           10,000        10,000
   Additional paid-in capital                              1,747,991     1,729,111
   Retained earnings                                       1,398,525     1,309,544
   Accumulated other comprehensive income                     80,842
                                                         -----------   -----------
         Total Stockholders' Equity                        3,237,358     3,048,655
                                                         -----------   -----------
            Total Liabilities and Stockholders' Equity   $11,461,210   $ 9,257,393
                                                         ===========   ===========
</TABLE>

                                                                             -5-
<PAGE>

                           NORTHERN FOOD & DAIRY, INC.
                  STATEMENTS OF INCOME and COMPREHENSIVE INCOME
                 For the Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                1999                       1998
                                      ----------------------     ----------------------
                                                      Percent                   Percent
                                                        of                        of
                                         Amount        Sales        Amount       Sales
                                      ------------    ------     ------------    ------
<S>                                   <C>             <C>        <C>             <C>
SALES                                 $ 21,248,554    100.00%    $ 20,724,610    100.00%

COST OF SALES                           18,520,172     87.16       18,366,518     88.62
                                      ------------    ------     ------------    ------
GROSS PROFIT                             2,728,382     12.84        2,358,092     11.38

GENERAL AND ADMINISTRATIVE
 EXPENSES                                2,046,526      9.62        1,567,779      7.55
                                      ------------    ------     ------------    ------
INCOME FROM OPERATIONS                     681,856      3.21          790,313      3.81

OTHER INCOME (EXPENSE)
   Interest income                               4      0.00           20,078      0.10
   Other income                             70,115      0.33           35,738      0.17
   Gain on sale of assets                    6,008      0.03           13,201      0.06
   Finance charges                         (29,425)    (0.14)         (32,048)    (0.15)
   Interest expense                       (238,701)    (1.12)        (198,717)    (0.96)
                                      ------------    ------     ------------    ------
TOTAL OTHER INCOME (EXPENSE)              (191,999)    (0.90)        (161,748)    (0.78)
                                      ------------    ------     ------------    ------
INCOME BEFORE INCOME TAX
 PROVISION                                 489,857      2.31          628,565      3.03

PROVISION FOR INCOME TAXES                   5,000      0.02            8,000      0.04
                                      ------------    ------     ------------    ------
NET INCOME                                 484,857      2.28          620,565      2.99

OTHER COMPREHENSIVE INCOME
   Unrealized holding gains arising
    during the year                         80,842      0.38
                                      ------------    ------     ------------    ------

TOTAL COMPREHENSIVE INCOME                 565,699      2.66%         620,565      2.99%
                                      ============    ======     ============    ======
</TABLE>

               See Accompanying Notes to Financial Statements and
                          Independent Auditor's Report.

                                                                             -6-
<PAGE>

                           NORTHERN FOOD & DAIRY, INC.
                   STATEMENTS CHANGES IN STOCKHOLDERS' EQUITY
                 For the Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                            Accumulated
                                               Additional                      Other           Total
                                     Common      Paid-In       Retained    Comprehensive   Stockholders'
                                      Stock      Capital       Earnings        Income         Equity
                                     ----------------------------------------------------------------
<S>                                  <C>        <C>            <C>           <C>           <C>
BALANCE - January 1, 1998            $10,000    $1,727,320       $959,394         --       $2,696,714

   Contributed capital                               1,791                                      1,791

   Distributions to
     shareholders                                                (270,415)                   (270,415)

   Net income                                                     620,565                     620,565
                                     -------    ----------     ----------    -------        ---------
BALANCE - December 31, 1998           10,000     1,729,111      1,309,544         --        3,048,655

   Contributed capital                              18,880                                     18,880

   Distributions to
     shareholders                                                (395,876)                   (395,876)

   Net income                                                     484,857                     484,857

   Comprehensive income                                                       80,842           80,842
                                     -------    ----------     ----------    -------        ---------
BALANCE - December 31, 1999          $10,000    $1,747,991     $1,398,525    $80,842        3,237,358
                                     =======    ==========     ==========    =======        =========
</TABLE>

               See Accompanying Notes to Financial Statements and
                          Independent Auditor's Report.

<PAGE>

                           NORTHERN FOOD & DAIRY, INC.
                            STATEMENTS OF CASH FLOWS
                 For the Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                                    1999          1998
                                                                                                 -----------    ---------
<S>                                                                                              <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                                    $   565,699    $ 620,565
   Adjustments to reconcile net income to net cash provided by (used in) operating activities:
      Depreciation                                                                                   706,293      675,636
      Unrealized holding gains                                                                       (80,842)
      Loan discount amortization                                                                                  (51,133)
      Bad debt write offs                                                                                          16,439
      (Gain) on sale of assets                                                                        (6,008)     (13,201)
      Changes in assets and liabilities:
         (Increase) in accounts receivable                                                          (855,027)     (92,953)
         (Increase) in other receivables                                                             (15,327)      (8,248)
         (Increase) decrease in inventory                                                            212,013     (759,226)
         (Increase) decrease in prepaid expenses                                                      19,592       (9,983)
         (Increase) in equipment deposits                                                            (11,766)      (3,394)
         (Increase) in loan origination fees                                                         (13,615)
         Increase (decrease) in bank overdraft                                                       386,834     (134,573)
         Increase in accounts payable                                                                259,780      786,599
         (Decrease) in customer deposits                                                             (75,000)     (25,813)
         Increase (decrease) in accrued expenses                                                     103,653      (91,323)
                                                                                                 -----------    ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                                          1,196,279      909,392
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
   Purchase of property and equipment                                                               (981,110)    (249,360)
   Proceeds from sale of assets                                                                        9,000      106,000
   Renovation construction in progress costs/ proceeds                                            (1,258,308)    (438,990)
   Purchase of investments                                                                                        (34,360)
   Payments received on notes receivable                                                              82,364      232,968
                                                                                                 -----------    ---------
NET CASH (USED IN) INVESTING ACTIVITIES                                                           (2,148,054)    (383,742)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
   Net proceeds (payments) on note payable - bank                                                   (801,439)     401,439
   Net proceeds (payments) on note payable - customer                                                (15,980)      75,000
   Proceeds from long-term debt and capital lease obligations                                      3,570,079
   Payments on long-term debt and capital lease obligations                                       (1,412,813)    (731,579)
   Proceeds from additional paid in capital                                                           18,880        1,791
   Distributions to shareholders                                                                    (395,876)    (270,415)
                                                                                                 -----------    ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                                  962,851     (523,764)
                                                                                                 -----------    ---------
NET INCREASE IN CASH                                                                                  11,076        1,886
CASH - BEGINNING OF YEAR                                                                               1,886           --
                                                                                                 -----------    ---------
CASH - END OF YEAR                                                                               $    12,962    $   1,886
                                                                                                 ===========    =========
</TABLE>

 See Accompanying Notes to Financial Statements and Independent Auditor's Report

<PAGE>

                                                           1999       1998
                                                         ========   ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the year for:

   Interest                                              $244,071   $195,692
                                                         ========   ========

   Income taxes                                          $  5,000   $  8,000
                                                         ========   ========

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES

During the years ended December 31, 1999 and 1998, the Company incurred a
capital lease obligations for use of equipment in the amount of $125,165 and
$75,477, respectively.

During the year ended December 31, 1998, the Company decreased the purchase
price of equipment and the related debt by $150,776 in accordance with the terms
of the original purchase agreement.

<PAGE>

                           NORTHERN FOOD & DAIRY, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Activity -

Northern Food & Dairy, Inc. processes liquid dairy and non-dairy products into
products suitable for human or animal consumption. The Company grants credit to
customers located throughout the United States and Japan. Trade receivables are
not collateralized.

Cash and Cash Equivalents

The Company recognizes cash equivalents as short-term, highly liquid investments
that are both readily convertible to known amounts of cash and with an original
maturity of three months or less.

Inventories -

Inventories are valued at the lower of cost or market under the first-in,
first-out (FIFO) inventory method.

Marketable Securities-

SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities"
establishes three categories of securities. The first category, held to
maturity, is composed of debt securities which a company has the positive intent
and ability to hold to maturity. These securities are carried at amortized cost.
The second category, available for sale, may be sold to address the liquidity
and other needs of a company. Debt and equity securities classified as available
for sale are carried at fair value on the balance sheet, with unrealized gains
and losses excluded from income and reported as a separate component of
stockholder's equity. The third category, trading securities, is for debt and
equity securities acquired for the purpose of selling them in the near-term.

Realized gains and losses on dispositions are based on the net proceeds and the
adjusted book value of the securities sold, using the specific identification
method. Unrealized gains and losses on investment securities available for sale
are based on the difference between book value and fair value of each security.
These gains and losses are credited or charged to other comprehensive income,
whereas realized gains and losses flow through the Company's yearly operations.

For the year ended December 31, 1999, all securities are classified as available
for sale. For the year ended December 31, 1998, the investment represented stock
of a privately held corporation and was recorded using the cost method of
accounting.

                                                                             -9-
<PAGE>

                           NORTHERN FOOD & DAIRY, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property and Equipment -

Property and equipment are stated at cost and depreciated over their estimated
useful lives applying straight-line and accelerated methods over the following
useful lives:

        Buildings                                         30 to 40 Years
        Furniture and fixtures                              5 to 7 Years
        Plant equipment                                     5 to 15 Years
        Vehicles                                            5 Years

Use of Estimates in Financial Statements -

In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Income Taxes -

The Company has elected to be taxed as a Subchapter S corporation under
provisions of the Internal Revenue Code whereby all income and expense is
reflected on the shareholders' individual income tax returns. Therefore, no
provision for income taxes is reflected in these financial statements except for
a Minnesota minimum tax.

NOTE 2 - MARKETABLE SECURITIES

Cost and fair value of marketable securities available for sale at October 31,
1999 are as follows:

                                    Unrealized     Unrealized           Fair
                        Cost           Gains          Loss              Value
                      -------       ----------     ----------         --------
Securities            $34,360        $80,842                          $115,202

                                                                            -10-
<PAGE>

                           NORTHERN FOOD & DAIRY, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

NOTE 3 - INVENTORIES

A summary of inventories is as follows:

                                                       1999              1998
                                                    ----------        ----------
  Raw materials                                     $   48,956        $  162,301
  Package and fuel inventory                           152,923           190,457
Finished goods and ingredients                       1,102,828         1,163,962
                                                    ----------        ----------
                                                    $1,304,707        $1,516,720
                                                    ----------        ----------

NOTE 4 - NOTES RECEIVABLE

Notes receivable, as of December 31, consisted of the following:

                                                               1999       1998
                                                             --------   -------
  Note receivable in monthly installments of $21,000,
   including interest at 9.5%; final payment due April,
   1999; secured by equipment.                               $          $82,364
                                                             --------   -------

                                                                         82,364
  Less: current portion                                                  82,364
                                                             --------   -------
     Total Notes Receivable                                  $          $
                                                             ========   =======

NOTE 5 - NOTES PAYABLE

Bank -

The Company has an available line of credit with a bank in the amount of
$1,000,000 for the years ended December 31, 1999 and 1998, respectively. The
note bears interest at the base rate plus 1.5% (currently 10%); is due December,
1999 and is secured by accounts receivable, inventory, equipment, general
intangibles and the personal guarantee of the majority stockholder of the
Company. The Company had no borrowings as of December 31, 1999 and $801,439 as
of December 31, 1998.

Customer -

The Company entered into a contract with a customer to purchase equipment to
improve production of the customer's product. The terms include interest of
$2,000 for one year, to be paid back at a rate of $0.06 per pound of product
sold to the customer. Total outstanding borrowing as of December 31, 1999, and
1998, was $59,020 and $75,000, respectively.

                                                                            -11-
<PAGE>

                           NORTHERN FOOD & DAIRY, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

NOTE 6 - LONG-TERM DEBT

<TABLE>
<CAPTION>
Long-term debt consists of the following:
                                                                                         1999             1998
                                                                                         ----             ----
<S>                                                                                  <C>               <C>
        Note payable to a bank in monthly installments of $119,444 starting
         September 2000, plus interest at 0.375% over the base rate (currently
         8.875%) through August, 2003, secured by a combination mortgage,
         security agreement and fixture financing statement. This agreement
         contains certain restrictive covenants                                        $905,747

        Note payable to a bank in monthly installments of $32,350, including
         interest at 1% over the base rate (currently 8.875%) through December,
         2004, secured by a second mortgage and the personal guarantee of two
         stockholders in the Company
         This agreement contains certain restrictive covenants                        2,500,000

        Note payable to a credit company in monthly installments of $823,
         including interest at 1.9% through February, 2002; secured by vehicle.          20,951

        Note payable to a bank in monthly installments of $43,332, including
         interest at 1.50% over the base rate (currently 10%) through November,
         2001; secured by accounts receivable, inventory, intangibles, equipment
         and guaranteed by the stockholders of the Company
               This agreement contains certain restrictive covenants.                                  $1,300,500

        Note payable to a bank in monthly installments of $500, including
         interest at 8.5% through September, 1999; secured by a vehicle.                                    3,893

        Contract for deed payable in quarterly installments of $4,648, including
         interest at 8% through August, 2001, secured by real estate.                   $30,081            45,488

        Note payable to a bank in monthly installments of $525, including
         interest at 9.25% through May, 2001; secured by vehicle.                         8,121            13,380
</TABLE>

                                                                            -12-
<PAGE>

                           NORTHERN FOOD & DAIRY, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

NOTE 6 - LONG-TERM DEBT (continued)

<TABLE>
<CAPTION>
                                                                                  1999          1998
                                                                               ----------    ----------
<S>                                                                            <C>           <C>
        Contract for deed payable in quarterly installments
         of $7,033, including interest at 8% through January,
         2002; secured by real estate.                                             57,228        79,649

        Note payable to a customer; total future payments of $400,000 due in
         monthly installments of $11,111 beginning May 1, 1999 for 36 months.
         The note was originally discounted to $216,114. The discount will be
         amortized over five years. During 1998, in accordance with the loan
         agreement, the note balance was decreased. Under the revised agreement,
         payments commence on May 31, 2001 for $11,111 per month until
         April 30, 2002.                                                          111,740       101,656

        Capital lease obligations(Note 6).                                        159,956        91,992
                                                                               ----------    ----------
                                                                                3,793,824     1,636,558
        Less:  current portion                                                    674,785       474,853
                                                                               ----------    ----------
           Total Long-Term Debt                                                $3,119,039    $1,161,705
                                                                               ==========    ==========
</TABLE>

Current maturities of long-term debt are as follows:

        Year ending December 31, 2000                                  $674,785
                                     2001                               865,117
                                     2002                               261,033
                                     2003                               222,750
                                     2004                             1,770,139
                                                                     ----------
                                                                     $3,793,824
                                                                     ==========

NOTE 7 - CAPITAL LEASES

During 1999 and 1998, the Company leased forklifts and office equipment under
capital lease agreements. Amounts representing capitalized lease equipment and
related accumulated amortization are included in property, plant and equipment
as follows:

                                                         1999             1998
                                                       --------         --------
Equipment                                              $231,953         $115,819
Less: accumulated amortization                           84,096           27,137
                                                       --------         --------
                                                       $147,857         $ 88,682
                                                       --------         --------

                                                                            -13-
<PAGE>

                           NORTHERN FOOD & DAIRY, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

NOTE 7 - CAPITAL LEASES - (continued)

The following is a schedule, by year, of future minimum lease payments as of
December 31:

          Year ending December 31, 2000                                 $ 72,742
                                      2001                                67,764
                                      2002                                24,558
                                      2003                                14,217
                                                                        --------
          Total minimum lease payments                                   179,281
          Less: amount representing interest                              19,325
                                                                        --------
             Present Value of Minimum Lease Payments                    $159,956
                                                                        ========

NOTE 8 - EMPLOYEE BENEFIT PLANS

The Company has an employee profit sharing plan which allows an annual
contribution not to exceed the maximum amount allowed as a deduction under the
Internal Revenue Code. The amount contributed each year is to be determined by
the Company's Board of Directors at its sole discretion. There were no accrued
contributions for the years ended December 31, 1999 and 1998. This plan was
amended January 1, 1993 to add a salary reduction 401(k) feature. The Company
matches 100% of the first 2% of the employee's salary deferral. The match was
$43,556 and $41,700 for the years ended December 31, 1999 and 1998,
respectively.

NOTE 9 - RELATED PARTY TRANSACTIONS

The Company leased a warehouse from a stockholder under a five year operating
lease with the option to renew for an additional five year term. Rent of $6,500
is paid monthly, expense for the year ended December 31, 1999 and 1998 was
$66,447 and $66,231, respectively. The warehouse is subleased to a customer on a
month-to-month basis. Rents received from the customer are offset against rent
expense. The Company has a month-to-month lease on land owned by a stockholder,
annual rent on the land is $12,000.

                                                                            -14-
<PAGE>

                           NORTHERN FOOD & DAIRY, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

NOTE 9 - RELATED PARTY TRANSACTIONS - (continued)

Beginning April 1, 1998, the Company leased office space, on a month-to-month
triple net lease, from a stockholder for $2,500 per month. Annual rent expense
for the years ended December 31, 1999 and 1998 was $30,000 and $25,000,
respectively.

Future Rental Commitments:
                           2000                                         $ 78,000
                           2001                                           78,000
                                                                        --------
                                                                        $156,000
                                                                        ========

NOTE 10 - INCOME TAXES

Income tax expense consisted of a Minnesota minimum fees of $5,000 and $8,000
for the years ended December 31, 1999 and 1998, respectively.

NOTE 11 - MAJOR CUSTOMER DISCLOSURE

The Company has sales to customers who contributed in excess of 10% of revenues
for the years ended December 31, 1999 and 1998. They are as follows:

                                                         1999             1998
                                                         ----             ----
        Number of customers                                 3                2
        Revenue contributed                         $8,458,399       $5,762,976
        Total revenue                              $21,248,554      $20,724,610
        Percent of total revenue contributed                40%              28%

NOTE 12 - MAJOR SUPPLIER DISCLOSURE

The Company has purchased from vendors which, individually, contributed in
excess of 10% of cost of goods sold purchases for the year ended December 31,
1999 and 1998 as follows:

                                                         1999             1998
                                                         ----             ----
        Number of vendors                                   4                3
        Purchases                                  $8,456,762       $6,843,406
        Total purchases                           $10,139,372      $12,270,280
        Percent of total purchases contributed             83%              56%

                                                                            -15-
<PAGE>

                           NORTHERN FOOD & DAIRY, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

NOTE 13 - COBRA BENEFITS

Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Company
provides health care benefits to eligible, former employees and eligible
dependents. Certain requirements are outlined by the federal government for this
coverage. The premium is paid in full by the insured on or before the fifteenth
day of the month prior to the month of coverage. This program is offered for a
duration of 18 months after the termination date. There were eight and eight
participants in this program in 1999 and 1998, respectively.

NOTE 14 - COMMITMENT

The Company entered into a consulting agreement with a former officer. The
agreement provides for monthly payments of $5,428 through January, 2014.
Consulting expense was $65,139 for the years ended December 31, 1999 and 1998,
respectively.

NOTE 15 - ADVERTISING COSTS

The Company expenses advertising costs as incurred. Advertising expense for the
years ended December 31, 1999 and 1998 was $5,814 and $4,944, respectively.

                                                                            -16-
<PAGE>

                           NORTHERN FOOD & DAIRY, INC.

                             ADDITIONAL INFORMATION

                           December 31, 1999 and 1998

                                     PART II

<PAGE>

          [LETTERHEAD OF FROEHLING, ANDERSON, PLOWMAN & WASMUTH LTD.]

             INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION

To the Board of Directors
Northern Food & Dairy, Inc.
Alexandria, Minnesota

Our report on our audits of the basic financial statements of Northern Food &
Dairy, Inc., for the years ended December 31, 1999 and 1998, appears on page
three. Those audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompany additional information is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated, in all material respects, in relation to the basic
financial statements taken as a whole.

/s/ Froehling, Anderson, Plowman & Wasmuth, Ltd.

Minnetonka, Minnesota
February 24, 2000

<PAGE>

                           NORTHERN FOOD & DAIRY, INC.
                           SCHEDULES OF COST OF SALES
                 For the Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                   1999                         1998
                                                     ---------------------------    -------------------------
                                                                        Percent                      Percent
                                                          Amount        of Sales        Amount       of Sales
                                                     ---------------   ---------    --------------   --------
<S>                                                  <C>                   <C>      <C>                 <C>
BEGINNING INVENTORY                                  $     1,326,263        6.24%   $      626,040       3.02%
PRODUCT PURCHASES                                         10,139,372       47.72        12,220,530      58.97
DIRECT LABOR                                               2,663,575       12.54         2,295,547      11.08
BROKER COMMISSION                                             59,908        0.28            32,568       0.16
VARIABLE INDIRECT EXPENSES
   Payroll taxes                                             327,629        1.54           265,827       1.28
   Employee uniforms                                          66,544        0.31            60,148       0.29
   Employee training                                           3,299        0.02               615       0.00
   Employee insurance                                        223,957        1.05           176,139       0.85
   Plant supplies                                            293,727        1.38           160,923       0.78
   Cleaning supplies                                         210,503        0.99           191,381       0.92
   Packaging supplies                                              0        0.00               124       0.00
   Lab supplies                                               55,939        0.26            53,405       0.26
   Filters                                                    71,499        0.34            82,838       0.40
   Outside lab                                                53,384        0.25            40,957       0.20
   Disposal costs                                            198,453        0.93           126,491       0.61
   Outside services                                          134,711        0.63            94,567       0.46
   Processing and drying fuel                                828,895        3.90           712,642       3.44
   Utilities                                                 706,224        3.32           615,559       2.97
   Freight                                                     2,925        0.01             3,326       0.02
   Miscellaneous                                               4,584        0.02            13,986       0.07
                                                     ---------------       -----    --------------      -----
TOTAL VARIABLE INDIRECT EXPENSES                           3,182,273       14.98         2,598,928      12.54
OTHER INDIRECT EXPENSES
   Labor                                                     504,335        2.36           489,998       2.35
   Equipment repairs                                         711,698        3.35           435,944       2.10
   Building repairs                                           72,236        0.34            34,599       0.17
   Rent                                                       99,599        0.47            90,694       0.44
   Real estate taxes                                          61,690        0.29            50,940       0.25
   Pest control                                               24,510        0.12            16,709       0.08
   Insurance                                                 183,766        0.86           132,861       0.64
   Depreciation                                              642,731        3.02           667,423       3.22
                                                     ---------------       -----    --------------      -----
TOTAL OTHER INDIRECT EXPENSES                              2,300,565       10.83         1,919,168       9.26
                                                     ---------------       -----    --------------      -----
TOTAL INDIRECT EXPENSES                                    5,482,838       25.81         4,518,096      21.80
                                                     ---------------       -----    --------------      -----
TOTAL EXPENSES                                            19,671,956       92.58        19,692,781      95.02
LESS: ENDING INVENTORY                                     1,151,784        5.42         1,326,263       6.40
                                                     ---------------       -----    --------------      -----
TOTAL COST OF SALES                                  $    18,520,172       87.16%   $   18,366,518      88.62%
                                                     ===============       =====    ==============      =====
</TABLE>

See Independent Auditor's Report on Additional Information.

                                                                            -19-
<PAGE>

NORTHERN FOOD & DAIRY, INC.
SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES
For the Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                  1999                      1998
                                         -----------------------    -----------------------
                                                        Percent                   Percent
                                           Amount      of Sales       Amount      of Sales
                                         ----------   ----------    ----------   ----------
<S>                                      <C>                <C>     <C>                <C>
GENERAL AND ADMINISTRATIVE
 EXPENSES
   Advertising and business promotion    $    5,814         0.03%   $    4,944         0.02%
   Bad debt expense                               0         0.00        16,439         0.08
   Contributions                              3,130         0.01        10,276         0.05
   Depreciation                              63,562         0.30         8,213         0.04
   Dues and subscriptions                     1,833         0.01         1,857         0.01
   Employee insurance                        84,205         0.40        65,504         0.32
   General insurance                          3,228         0.02         2,298         0.01
   License fees                               9,877         0.05        11,899         0.06
   Office supplies                           21,647         0.10        14,094         0.07
   Payroll taxes                            112,732         0.53        91,467         0.44
   Postage                                   36,856         0.17        34,959         0.17
   Professional fees                        210,034         0.99       101,035         0.49
   Consulting fees                           65,139         0.31        65,139         0.31
   401(k) match                              43,556         0.20        41,700         0.20
   Real estate taxes                          2,570         0.01         2,123         0.01
   Salaries and wages                     1,231,747         5.80       959,251         4.63
   Telephone                                 55,282         0.26        38,957         0.19
   Travel and entertainment                  85,050         0.40        83,053         0.40
   Two-way radio                                962         0.00         6,463         0.03
   Utilities                                  9,302         0.03         8,108         0.03
                                         ----------   ----------    ----------   ----------
TOTAL GENERAL AND
 ADMINISTRATIVE EXPENSES                 $2,046,526         9.62%   $1,567,779         7.55%
                                         ==========   ==========    ==========   ==========
</TABLE>

          See Independent Auditor's Report on Additional Information.

                                                                            -20-

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