As filed with the Securities and Exchange Commission on March 3, 1999.
Securities Act File No._____________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
PILGRIM INVESTMENT FUNDS, INC.
(formerly known as Pilgrim America Investment Funds, Inc.)
(Exact Name of Registrant as Specified in Charter)
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004
(Address of Principal Executive Offices) (Zip Code)
(800) 334-3436
(Registrant's Area Code and Telephone Number)
James M. Hennessy, Esq.
Pilgrim Investments, Inc.
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
(Name and Address of Agent for Service)
<TABLE>
<CAPTION>
With copies to:
<S> <C> <C>
Jeffrey S. Puretz, Esq. E. Blake Moore, Jr. Joseph B. Kittredge, Jr.
Dechert Price & Rhoads Nicholas-Applegate Capital Management Ropes & Gray
1775 Eye Street, N.W. 600 West Broadway, Suite 2900 One International Place
Washington, D.C. 20006 San Diego, CA 92101 Boston, MA 02110
</TABLE>
------------------------
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective on April 2,
1999 pursuant to Rule 488 under the Securities Act of 1933.
- --------------------------------------------------------------------------------
No filing fee is required because an indefinite number of shares have
previously been registered pursuant to Rule 24f-2 under
the Investment Company Act of 1940, as amended.
================================================================================
<PAGE>
NICHOLAS-APPLEGATE HIGH YIELD BOND FUND
(Renamed Pilgrim High Yield Fund II)
600 West Broadway
San Diego, California 92101
(800) 626-8383
March __, 1999
Dear Shareholder:
Your Board of Trustees has called a Special Meeting of Shareholders of the
Nicholas-Applegate High Yield Bond Fund (which has been renamed Pilgrim High
Yield Fund II) to be held at 9:00 a.m., local time, on May 21, 1999 at the
offices of Nicholas-Applegate Mutual Funds (renamed Pilgrim Mutual Funds), 600
West Broadway, San Diego, California.
The Board of Trustees has approved a reorganization of the
Nicholas-Applegate High Yield Bond Fund into the Pilgrim High Yield Fund, which
is managed by Pilgrim Investments, Inc. and is part of the Pilgrim family of
funds. The Pilgrim High Yield Fund has investment objectives and policies that
are similar in many respects to those of the Nicholas-Applegate High Yield Bond
Fund, although there are some differences, and is older and larger than the
Nicholas-Applegate High Yield Bond Fund. In a related transaction, on January
28, 1999, Nicholas-Applegate Capital Management and Nicholas-Applegate
Securities entered into an agreement with Pilgrim America Capital Corporation
and Pilgrim Investments pursuant to which a number of the Nicholas-Applegate
Mutual Funds other than the High Yield Bond Fund will, subject to shareholder
approval, become part of the Pilgrim family of funds.
You are being asked to vote on an Agreement and Plan of Reorganization to
approve the reorganization of the Nicholas-Applegate High Yield Bond Fund into
the Pilgrim High Yield Fund. The accompanying document describes the proposed
transaction and compares the policies and expenses of the funds for your
evaluation.
After careful consideration, the Board of Trustees unanimously approved
this proposal and recommended that shareholders vote "FOR" the proposal.
Formal notice of the Meeting appears on the next page, followed by the
Proxy Statement/Prospectus. We hope that you can attend the Meeting in person;
however, we urge you in any event to vote your shares by completing and
returning the enclosed proxy in the envelope provided at your earliest
convenience.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. IN ORDER
TO AVOID THE ADDED COST OF FOLLOW-UP SOLICITATIONS AND POSSIBLE ADJOURNMENTS,
PLEASE TAKE A FEW MINUTES TO READ THE PROXY STATEMENT/PROSPECTUS AND CAST YOUR
VOTE. IT IS IMPORTANT THAT YOUR VOTE BE RECEIVED NO LATER THAN MAY __, 1999.
Nicholas-Applegate High Yield Bond Fund is using D.F. King & Co., a professional
proxy solicitation firm, to assist shareholders in the voting process. As the
date of the meeting approaches, if we have not already heard from you, you may
receive a telephone call from D.F. King & Co. reminding you to exercise your
right to vote.
<PAGE>
We appreciate your participation and prompt response in this matter and
thank you for your continued support.
Sincerely,
Arthur E. Nicholas
President
<PAGE>
NICHOLAS-APPLEGATE HIGH YIELD BOND FUND
(Renamed Pilgrim High Yield Fund II)
600 West Broadway
San Diego, California 92101
(800) 626-8383
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
NICHOLAS-APPLEGATE HIGH YIELD BOND FUND
TO BE HELD ON MAY 21, 1999
To the Shareholders:
A Special Meeting of Shareholders of the Nicholas-Applegate High Yield Bond Fund
(which has been renamed Pilgrim High Yield Fund II), a series of
Nicholas-Applegate Mutual Funds (renamed Pilgrim Mutual Funds) ("NAMF"), will be
held on May 21, 1999 at 9:00 a.m., local time, at the offices of NAMF, 600 West
Broadway, San Diego, California 92101 for the following purposes:
1. To approve an Agreement and Plan of Reorganization providing for the
acquisition of all or substantially all of the assets of
Nicholas-Applegate High Yield Bond Fund by the Pilgrim High Yield
Fund, in exchange for shares of common stock of Pilgrim High Yield
Fund and the assumption by Pilgrim High Yield Fund of all of the
liabilities of Nicholas-Applegate High Yield Bond Fund; and
2. To transact such other business as may properly come before the
Special Meeting of Shareholders or any adjournments thereof.
Shareholders of record at the close of business on March 4, 1999 are
entitled to notice of, and to vote at, the meeting. Your attention is called to
the accompanying Proxy Statement/Prospectus. Regardless of whether you plan to
attend the meeting, PLEASE COMPLETE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY
CARD so that a quorum will be present and a maximum number of shares may be
voted. If you are present at the meeting, you may change your vote, if desired,
at that time.
By Order of the Board of Trustees
E. Blake Moore, Secretary
March __, 1999
<PAGE>
TABLE OF CONTENTS
Introduction.......................................................... 1
Summary............................................................... 3
Investment Objectives and Policies.................................... 6
Comparison Of Objectives And Primary Investments................. 6
Comparison Of Risks.............................................. 7
Comparison Of Portfolio Characteristics.......................... 8
Comparison Of Securities And Investment Techniques............... 10
Comparison of Fees and Expenses....................................... 13
Additional Information About Pilgrim High Yield Fund.................. 18
Information About The Reorganization.................................. 19
Additional Information About The Funds................................ 22
General Information................................................... 24
Appendix A............................................................ A-1
Appendix B............................................................ B-1
Appendix C............................................................ C-1
Appendix D............................................................ D-1
<PAGE>
PROXY STATEMENT/PROSPECTUS
March __, 1999
NICHOLAS-APPLEGATE HIGH YIELD BOND FUND,*
a series of Nicholas-Applegate Mutual Funds
relating to the reorganization into
PILGRIM HIGH YIELD FUND,
a series of Pilgrim Investment Funds, Inc.
40 North Central Avenue
Phoenix, Arizona 85004
(800) 992-0180
INTRODUCTION
This Proxy Statement/Prospectus provides you with information about a
proposed transaction in which all or substantially all of the assets of
Nicholas-Applegate High Yield Bond Fund (renamed Pilgrim High Yield Fund II)
would be transferred to Pilgrim High Yield Fund, in exchange for shares of
Pilgrim High Yield Fund and the assumption by Pilgrim High Yield Fund of all of
Nicholas-Applegate High Yield Bond Fund's liabilities (the "Reorganization").
Nicholas-Applegate High Yield Bond Fund would distribute to its shareholders the
shares of Pilgrim High Yield Fund received by it in the Reorganization, and
would be liquidated. You would receive shares of Pilgrim High Yield Fund having
an aggregate net asset value equal to the aggregate net asset value of the
shares of Nicholas-Applegate High Yield Bond Fund held by you as of the close of
business on the business day preceding the closing of the Reorganization. You
are being asked to vote on the Agreement and Plan of Reorganization through
which these transactions would be accomplished.
Because shareholders of Nicholas-Applegate High Yield Bond Fund are being
asked to approve a transaction that will result in their holding shares of
Pilgrim High Yield Fund, this Proxy Statement also serves as a Prospectus for
Pilgrim High Yield Fund.
This Proxy Statement/Prospectus, which you should retain for future
reference, contains important information about Pilgrim High Yield Fund that you
should know before investing. A Statement of Additional Information dated March
__, 1999, containing additional information about the Reorganization and the
parties, has been filed with the Securities and Exchange Commission (the "SEC")
and is incorporated by reference into this Proxy Statement/Prospectus. A copy of
the Statement of Additional Information is available upon request by calling
(800) 992-0180.
For a more detailed discussion of the investment objectives, policies,
restrictions and risks of Pilgrim High Yield Fund, see the prospectus for the
Pilgrim Funds dated November 1, 1998 (the "Pilgrim Prospectus"), and the
Statement of Additional Information for Pilgrim High Yield Fund dated November
1, 1998, each of which may be obtained without charge by calling (800) 992-0180.
For a more detailed discussion of the investment objectives, policies,
- ----------
* On March 15, 1999, the name of Nicholas-Applegate High Yield Bond Fund was
changed to Pilgrim High Yield Fund II, and the name of Nicholas-Applegate Mutual
Funds was changed to Pilgrim Mutual Funds. However, to avoid confusion, they are
referred to in this Proxy Statement/Prospectus by their prior names. Despite
these changes, Nicholas-Applegate Capital Management will remain the investment
advisor to the Nicholas-Applegate High Yield Bond Fund until shareholders
approve either the Reorganization or the proposal in a separate proxy to approve
Pilgrim Investments, Inc. as the advisor to the Fund.
<PAGE>
restrictions and risks of Nicholas-Applegate High Yield Bond Fund, see the
prospectuses and Statements of Additional Information for the Nicholas-Applegate
Mutual Funds (the "Nicholas-Applegate Prospectus"), each dated July 24, 1998 for
Class Q Shares and September 18, 1998 for Class A, B and C Shares, which are
incorporated herein by reference and copies of which may be obtained without
charge by calling (800) 992-0180. In addition, Pilgrim High Yield Fund and
Nicholas-Applegate High Yield Bond Fund each provides periodic reports to its
shareholders which highlight certain important information about the Fund,
including investment results and financial information. The semi-annual report
for Pilgrim High Yield Fund dated December 31, 1998 is included herewith and
incorporated herein by reference. You may receive a copy of the most recent
annual report for either Fund and a copy of any more recent semi-annual report,
without charge, by calling (800) 992-0180.
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES, OR DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-2-
<PAGE>
SUMMARY
The following is a summary of certain information contained in this Proxy
Statement/ Prospectus. Shareholders should read this entire Proxy
Statement/Prospectus carefully, and for more information should consult the
Pilgrim Prospectus, the Nicholas-Applegate Prospectus, and the Agreement and
Plan of Reorganization, which is attached hereto as Appendix A.
THE PROPOSED REORGANIZATION. The Board of Trustees of Nicholas-Applegate
Mutual Funds approved on February 19, 1999 an Agreement and Plan of
Reorganization (the "Reorganization Agreement"). Subject to its approval by the
shareholders of Nicholas-Applegate High Yield Bond Fund, the Reorganization
Agreement provides for (a) the transfer of all or substantially all of the
assets of Nicholas-Applegate High Yield Bond Fund to Pilgrim High Yield Fund, in
exchange for shares of Pilgrim High Yield Fund and the assumption by Pilgrim
High Yield Fund of all of the liabilities of Nicholas-Applegate High Yield Bond
Fund; and (b) the distribution of the Pilgrim High Yield Fund shares to the
shareholders of Nicholas-Applegate High Yield Bond Fund in complete liquidation
of Nicholas-Applegate High Yield Bond Fund (the "Reorganization"). The
Reorganization is expected to occur on May 21, 1999, or on a later date as the
parties may agree (the "Closing"). Pilgrim Investments, Inc., the Investment
Manager of Pilgrim High Yield Fund, will bear the expenses of the
Reorganization.
As a result of the Reorganization, each shareholder of Class A, Class B,
Class C and Class Q Shares of Nicholas-Applegate High Yield Bond Fund would
become a shareholder of the same Class of Pilgrim High Yield Fund. Each
shareholder would hold, immediately after the Closing, shares of each Class of
Pilgrim High Yield Fund having an aggregate net asset value equal to the
aggregate net asset value of the shares of that same Class of Nicholas-Applegate
High Yield Bond Fund held by that shareholder as of the close of business on the
business day preceding the Closing.
Approval of the Reorganization Agreement requires the affirmative vote of
the lesser of (i) 67% or more of the shares of Nicholas-Applegate High Yield
Bond Fund present or represented at the meeting, if more than 50% of the shares
of Nicholas-Applegate High Yield Bond Fund are present or represented by proxy,
or (ii) more than 50% of the shares of Nicholas-Applegate High Yield Bond Fund.
Shareholders of Nicholas-Applegate High Yield Bond Fund are also being
asked to vote in a separate proxy statement to approve Pilgrim Investments, Inc.
as investment manager to Nicholas-Applegate High Yield Bond Fund. If the
Reorganization Agreement is not approved, but that other proposal is approved,
Pilgrim Investments, Inc. will become the investment manager to
Nicholas-Applegate High Yield Bond Fund. If neither proposal is approved,
Nicholas-Applegate High Yield Bond Fund will continue in existence and will
continue to be managed by Nicholas-Applegate Capital Management, unless the
Board of Trustees approves other action.
AFTER CAREFUL CONSIDERATION, NICHOLAS-APPLEGATE MUTUAL FUNDS' BOARD OF
TRUSTEES UNANIMOUSLY APPROVED THIS PROPOSAL AND RECOMMENDED SHAREHOLDERS VOTE
"FOR" THE PROPOSAL.
-3-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives and policies
of the Funds are similar in many respects, although there are some differences.
Pilgrim High Yield Fund's primary investment objective is to seek a high level
of current income, and its secondary objective is capital appreciation, with
preservation of capital as a consideration. The investment objective of
Nicholas-Applegate High Yield Bond Fund is a high level of current income and
capital growth. Each Fund normally seeks its objectives by investing primarily
in high yield debt securities.
EXPENSES. The operating expenses of Pilgrim High Yield Fund, expressed as a
ratio of expenses to average daily net assets ("expense ratio") currently are
the same as those of Nicholas-Applegate High Yield Bond Fund, except that the
net expenses for Class A shares are 0.10% lower for Pilgrim High Yield Fund. The
Funds each have the same management fee at an annual rate of 0.60% of the Fund's
average daily net assets. The fees for distribution and shareholder servicing
for Pilgrim High Yield Fund are the same as Nicholas-Applegate High Yield Fund,
with the exception of Class A, for which they are 0.10% lower for Pilgrim High
Yield Fund. The sales load structure for the Funds is also substantially the
same.
Expense limitation arrangements are in place for both funds, under
which the adviser for each Fund limits the ordinary operating expenses borne by
the Fund. Without these expense limitation arrangements, the expense ratio for
each Class of Pilgrim High Yield Fund would have been lower than the expense
ratio for the same Class of Nicholas-Applegate High Yield Bond Fund. For the
calendar year ended December 31, 1998, for example, the expense ratio for Class
A shares would have been 1.11% for Pilgrim High Yield Fund and 1.61% for
Nicholas-Applegate High Yield Bond Fund. Effective January 1, 2000 and
continuing for at least two years from the date of the Reorganization, the
expense limitation for Pilgrim High Yield Fund will increase by 0.10% for each
Class, at which time the expense limit will be 1.10% for Class A and Class Q
shares, and 1.85% for Class B and Class C shares. As a result, the expense limit
from January 1, 2000 through the second anniversary of the Reorganization will
be the same as the current expense limit on Class A shares of Nicholas-Applegate
High Yield Bond Fund and 0.10% higher than the current expense limit on Class B,
Class C and Class Q shares of Nicholas-Applegate High Yield Bond Fund. This does
not necessarily mean that ordinary operating expenses will increase on and after
January 1, 2000; these expenses would increase only if at that time they exceed
the levels of the current expense limitations.
INVESTMENT MANAGER. Pilgrim Investments, Inc. ("Pilgrim Investments"),
40 North Central Avenue, Phoenix, Arizona 85004, is the investment manager to
Pilgrim High Yield Fund. Nicholas-Applegate Capital Management, 600 West
Broadway, San Diego, California 92101 serves as investment adviser for
Nicholas-Applegate High Yield Bond Fund. After the Reorganization, Pilgrim
Investments would continue to manage the Pilgrim High Yield Fund, which would
include the assets from the Nicholas-Applegate fund.
PURCHASE, REDEMPTION, AND EXCHANGE INFORMATION. The purchase, redemption
and exchange procedures and privileges for Nicholas-Applegate High Yield Bond
Fund and Pilgrim High Yield Fund are similar in many respects, but there are
some differences. Despite these differences, the contingent deferred sales load
structure and conversion characteristics of the Nicholas-Applegate High Yield
Bond Fund shares held by you at the Reorganization will apply to the Pilgrim
High Yield Fund shares issued to you in the Reorganization, and the period that
you held the Nicholas-Applegate High Yield Bond Fund shares will be included in
the holding period of the Pilgrim High Yield Fund shares for purposes of
calculating contingent deferred sales charges and determining conversion rights.
Purchases of shares of Pilgrim High Yield Fund after the Reorganization
will be subject to the sales load structure and conversion characteristics of
Pilgrim High Yield Fund. Certain other Nicholas-Applegate Mutual Funds are also
expected to become part of the Pilgrim family of funds at approximately the time
of the Reorganization. After the Reorganization, you will continue to be able to
exchange into those funds, and will also be able to exchange into existing
Pilgrim funds that offer the same class of shares that you wish to exchange.
-4-
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION. The Funds expect
that the Reorganization will constitute a tax-free reorganization within the
meaning of section 368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Code"). If the Reorganization constitutes a tax-free reorganization, no
gain or loss will be recognized by Nicholas-Applegate High Yield Bond Fund or
its shareholders as a result of the Reorganization. See "Information About The
Reorganization - Tax Considerations."
-5-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives, policies and restrictions of the Funds are
similar in many respects, although there are certain differences between them.
There can be no assurance that either Fund will achieve its stated objectives.
COMPARISON OF OBJECTIVES AND PRIMARY INVESTMENTS
The investment objectives of both Funds are substantially the same. Both
Funds seek a high level of current income. Nicholas-Applegate High Yield Bond
Fund also seeks capital growth, while Pilgrim High Yield Fund has capital
appreciation as a secondary objective, with preservation of capital as a
consideration. Each Fund normally invests at least 65% of its assets in high
yield debt securities, which are commonly referred to as "junk bonds," including
convertible securities and, for Pilgrim High Yield Fund, preferred stock.
Pilgrim High Yield Fund invests in high yield securities that do not, in the
opinion of Pilgrim Investments, involve undue risk relative to their expected
return characteristics. Each Fund is diversified.
For both Funds, assets not invested in high yield securities may be
invested in common stocks. In addition, Pilgrim High Yield Fund may invest in
preferred stocks and other debt obligations rated Baa or better by Moody's
Investor Services, Inc. ("Moody's") or BBB or better by Standard & Poor's
Corporation ("S&P"), U.S. Government securities, warrants, money market
instruments, including repurchase agreements on U.S. Government securities,
mortgage-related securities, financial futures and related options, and
participation interests and assignments in floating rate loans and notes.
Nicholas-Applegate High Yield Bond Fund may also invest in options, futures
contracts and interest rate and currency swaps. Both Funds may invest in
short-term, high-quality debt instruments for liquidity and temporary defensive
purposes.
In pursuing Pilgrim High Yield Fund's objectives, Pilgrim Investments seeks
to identify situations in which the rating agencies have not fully perceived the
value of the security. In selecting high yield securities for Nicholas-Applegate
High Yield Bond Fund, Nicholas-Applegate Capital Management uses a combination
of "top-down" analysis of economic trends and "bottom-up" analysis of the
financial condition and competitiveness of individual companies, and analyzes
credit quality, the yield to maturity of the security, and the effect the
security will have on the average yield to maturity of the Fund.
Generally, Pilgrim High Yield Fund will invest in securities rated no
lower than B by Moody's or S&P, unless Pilgrim Investments believes the
financial condition of the issuer or other available protections reduce the
risk to the Fund. For example, the Fund may invest in such a security if
Pilgrim Investments believes the issuer's assets are sufficient for the issuer
to repay its outstanding obligations. Nevertheless, the Fund may invest in
securities rated lower than B if Pilgrim Investments perceives greater value
in these securities than it believes is reflected in their prevailing market
price. Nicholas-Applegate High Yield Bond Fund does not have any policies that
limit investments in securities rated below B. The average credit quality of
Nicholas-Applegate High Yield Bond Fund's portfolio has generally been lower
than that of Pilgrim High Yield Fund.
-6-
<PAGE>
Following the Reorganization, in the ordinary course of its business as a
regulated investment company, Pilgrim Investments may sell certain of the
holdings of Nicholas-Applegate High Yield Bond Fund that were transferred to
Pilgrim High Yield Fund in connection with the Reorganization in order to
restructure the portfolio consistent with Pilgrim High Yield Fund's investment
policies. Such sales may result in increased transaction costs for Pilgrim High
Yield Fund, and in the realization of taxable capital gains.
COMPARISON OF RISKS
Because the Funds share similar investment objectives and policies, the
risks of an investment in Pilgrim High Yield Fund are substantially similar to
the risks of an investment in Nicholas-Applegate High Yield Bond Fund. The
principal risk of an investment in either Fund is fluctuation in the net asset
value of the Fund's shares. Market conditions, financial conditions of issuers
represented in the portfolio, investment policies, portfolio management, and
other factors affect such fluctuations.
Each Fund is subject to credit risk. An issuer of a security held by a Fund
may default, become bankrupt or become unable to meet a financial obligation,
thereby decreasing the value of the Fund's holdings. Risk of default or
bankruptcy may be greater in periods of economic uncertainty or recession. High
yield securities are regarded as predominantly speculative with respect to the
issuing company's continuing ability to meet principal and interest payments,
and generally present a greater risk of default on payment of principal and
interest by the issuer than higher rated securities. The average credit quality
of Nicholas-Applegate High Yield Bond Fund's portfolio has generally been
somewhat lower than that of Pilgrim High Yield Fund, so the Nicholas-Applegate
High Yield Bond Fund may be subject to somewhat greater levels of credit risk.
Each Fund is also subject to interest rate risk. For each Fund, the value
of the Fund's investments may fluctuate with changes in interest rates.
Generally, when interest rates rise the value of debt securities will fall, and
when interest rates fall the value of debt securities will increase.
Certain risks associated with an investment in Pilgrim High Yield Fund are
summarized below in "Comparison of Securities and Investment Techniques."
-7-
<PAGE>
COMPARISON OF PORTFOLIO CHARACTERISTICS
The following table compares certain characteristics of the portfolios of
the Funds as of December 31, 1998:
<TABLE>
<CAPTION>
PILGRIM HIGH YIELD NICHOLAS-APPLEGATE HIGH YIELD
------------------ -----------------------------
<S> <C> <C>
Net Assets $385,447,870 $95,027,888
Number of Holdings 86 83
Average Credit Quality
Average Remaining Maturity of
High Yield Securities 8.35 years 7.78 years
Portfolio Turnover
Rate (12 months ended 12/31/98) 161% 262%
As a percentage of net assets:
Foreign Securities 0%
Mortgage-Related Securities 0%
U.S. Government Securities 0%
Zero Coupon Bonds 0%
Issue Sizes < $100 million __%
Borrowings 0%
Issues Paid in Cash __%
Top 5 Industries Communications 17.3% Communications 23.4%
(as a % of net assets) Retail 10.7% Broadcasting 10.7%
Gaming 4.9% Entertainment 7.7%
Media 4.8% Financial Services 6.3%
Automotive 4.7% Internet Services 6.3%
Top 10 Holdings JH Heafner Co. 2.5% United Rentals, Inc. 4.9%
(as a % of net assets) Bally Total Fitness Winstar Communications 4.1%
Holdings 2.3% Fox Family Worldwide 3.5%
CSK Automotive, Inc. 2.2% Trans World Airlines 3.2%
Caesars World 2.1% Atlas Air, Inc. 3.2%
United Rentals, Inc. 2.1% Crown Castle Int'l. 3.1%
Imperial Holly Corp. 2.0% SFX Entertainment 3.0%
Paragon Holdings 2.0% Resource America, Inc. 2.5%
Regal Cinemas, Inc. 1.9% Echostar Comm. Corp. 2.4%
Nextlink Communications 1.9% Orbcomm Global LP 2.2%
Pegasus Communications 1.8%
</TABLE>
-8-
<PAGE>
For the calendar years ended December 31, 1997 and 1998, the average
weighted percentage of each Fund's assets invested in securities with the
following ratings (based on month-end holdings) were:
S&P RATING PILGRIM HIGH YIELD NICHOLAS-APPLEGATE HIGH YIELD
---------- -------------------- -----------------------------
1997 1998 1997 1998
---- ---- ---- ----
BBB
RATED 0% 0% __% 0%
UNRATED* __% __% __% 0%
BB or higher
RATED 6.95% 8.39% __% 9%
UNRATED* __% __% __% 0%
B
RATED 58.99% 61.84% __% 56.36%
UNRATED* __% __% __% 0%
CCC
RATED 2.83% 1.98% __% 10.99%
UNRATED* __% __% __% 0%
CC
RATED 0% 0% __% 0.86%
UNRATED* __% __% __% 0%
C
RATED 0% 0% __% 0%
UNRATED* __% __% __% 0%
D
RATED 0% 0% __% 0%
UNRATED* __% __% __% 13.97%
- ----------
* Deemed by the investment adviser to be equivalent to the same rating
during the relevant period. For a discussion of the S&P ratings, see
Appendix C.
RELATIVE PERFORMANCE
The following table shows, for each calendar year since 1989, the average
annual total return for (a) Class A shares of the Pilgrim High Yield Fund, (b)
Class A shares of the Nicholas-Applegate High Yield Bond Fund for the period
from the commencement of that Fund, and (c) the Lehman High Yield Index. The
Lehman High Yield Index has an inherent performance advantage over the Funds,
since it has no cash in its portfolio and incurs no operating expenses. An
investor cannot invest directly in an index. Total return is calculated assuming
reinvestment of all dividends and capital gain distributions at net asset value
and excluding the deduction of sales charges.
-9-
<PAGE>
CALENDAR PILGRIM HIGH NICHOLAS-APPLEGATE LEHMAN HIGH
YEAR ENDED YIELD FUND HIGH YIELD BOND FUND* YIELD INDEX
---------- ---------- --------------------- -----------
12/31/89 1.87% -- 0.83%
12/31/90 (9.49) -- (9.59)
12/31/91 29.44 -- 46.18
12/31/92 16.19 -- 15.75
12/31/93 18.52 -- 17.12
12/31/94 (1.55) -- (1.03)
12/31/95 17.71 -- 19.17
12/31/96 15.76 5.89%** 11.35
12/31/97 14.98 15.33 12.76
12/31/98 (2.96) (0.32) 1.87
- ----------
* Performance for Class A shares of the Nicholas-Applegate High Yield
Bond Fund for periods prior to March 27, 1998, the date on which that
Fund first offered A shares, is based upon the performance of the
Institutional Class shares of the Fund, which were first offered on
July 31, 1996, as restated to reflect the higher fees and expenses of
Class A shares, excluding the deduction of sales charges.
** From commencement of operations, July 31, 1996. Unannualized.
As shown above, Nicholas-Applegate High Yield Bond Fund outperformed
Pilgrim High Yield Fund for certain periods since the inception of
Nicholas-Applegate High Yield Bond Fund. However, it should be noted that, as
discussed above, the average credit quality of Nicholas-Applegate High Yield
Bond Fund's portfolio generally has been somewhat lower, and therefore, somewhat
more speculative, than that of Pilgrim High Yield Fund for the same periods.
Generally, Pilgrim High Yield Fund has been managed in recent years to invest
significantly in the more highly rated securities in the high yield universe
than many other high yield bond funds, and has not used certain strategies that
could increase credit or other risk. In particular, in recent years, Pilgrim
High Yield Fund has not invested in foreign securities, zero coupon bonds,
securities that pay interest in assets other than cash (such as pay-in-kind
bonds), or securities from small offerings, i.e., those that raise less than
$100 million.
COMPARISON OF SECURITIES AND INVESTMENT TECHNIQUES
The following is a summary of the types of securities in which the Funds
may invest and strategies the Funds may employ in pursuit of their investment
objectives. As with any security, an investment in a Fund's shares involves
certain risks, including loss of principal. The Funds are subject to varying
degrees of financial, market and credit risk.
HIGH YIELD SECURITIES. Each Fund normally invests at least 65% of its
assets in high yield securities, which are high yield/high risk debt securities
that are rated lower than Baa by Moody's or BBB by S&P, or if not rated by
Moody's or S&P, of equivalent quality ("High Yield Securities"). High Yield
Securities generally provide greater income and increased opportunity for
capital appreciation than higher quality debt securities, but they also
typically entail greater potential price volatility and credit risk.
High Yield Securities are not considered to be investment grade, and are
regarded as predominantly speculative with respect to the issuing company's
continuing ability to meet principal and interest payments. The prices of High
Yield Securities tend to be more sensitive to adverse economic downturns or
-10-
<PAGE>
individual corporate developments than higher-rated investments. A projection of
an economic downturn or of a period of rising interest rates, for example, could
cause a decline in High Yield Securities prices. The market prices of High Yield
Securities structured as zero-coupon or pay-in-kind securities may be affected
to a greater extent by interest rate changes.
High Yield Securities are generally less liquid than higher grade bonds.
Less liquidity could adversely affect the price at which a Fund could sell a
High Yield Security, and could adversely affect the daily net asset value of the
Fund's shares. At times of less liquidity, it may be more difficult to value
High Yield Securities.
CORPORATE DEBT SECURITIES. Each Fund may invest in corporate debt
securities. Corporate debt securities include corporate bonds, debentures, notes
and other similar corporate debt instruments, including convertible securities.
The market value of a corporate debt security will generally increase when
interest rates decline, and decrease when interest rates rise. There is also the
risk that the issuer of a debt security will be unable to pay interest or
principal at the time called for by the instrument.
MORTGAGE-RELATED SECURITIES. Each Fund may invest in mortgage-related
securities. Pilgrim High Yield Fund may invest up to 35% of its total assets in
mortgage-related securities. Nicholas-Applegate High Yield Bond Fund has no
limit on the percentage of its assets that may be invested in such securities.
Investments in mortgage-related securities involve certain risks. Like
other fixed income securities, when interest rates rise, the value of a
mortgage-backed security generally will decline, and may decline more rapidly as
the underlying mortgages are less likely to be prepaid; however, when interest
rates are declining, the value of mortgage-backed securities with prepayment
features may not increase as much as other fixed income securities. The mortgage
loans underlying a mortgage-backed security will be subject to normal principal
amortization, and may be prepaid prior to maturity due to the sale of the
underlying property, the refinancing of the loan or foreclosure. The rate of
prepayments on underlying mortgages will affect the price and volatility of a
mortgage-related security, and may have the effect of shortening or extending
the effective maturity of the security beyond what was anticipated at the time
of the purchase. Unanticipated rates of prepayment on underlying mortgages can
be expected to increase the volatility of such securities. In addition, the
value of these securities may fluctuate in response to the market's perception
of the creditworthiness of the issuers of mortgage-related securities owned by a
Fund.
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities. U.S. Government securities include direct obligations of the U.S.
Treasury (such as U.S. Treasury bills, notes and bonds) and obligations issued
or guaranteed by U.S. Government agencies or instrumentalities. While U.S.
Government securities provide substantial protection against credit risk, they
do not protect investors against price declines in the securities due to
changing interest rates.
-11-
<PAGE>
FOREIGN SECURITIES. Pilgrim High Yield Fund may invest up to 10% of its
total assets in debt obligations (including preferred stocks) issued or
guaranteed by foreign corporations, certain supranational entities (such as the
World Bank) and foreign governments (including political subdivisions having
taxing authority) or their agencies or instrumentalities, including American
Depositary Receipts. These securities may be denominated in either U.S. dollars
or in non-U.S. currencies. There is no limit on the percentage of
Nicholas-Applegate High Yield Bond Fund's assets that may be invested in foreign
securities, and they may be denominated in either U.S. dollars or other
currencies.
There are certain risks in owning foreign securities, including those
resulting from: (i) fluctuations in currency exchange rates; (ii) devaluation of
currencies; (iii) political or economic developments and the possible imposition
of currency exchange blockages or other foreign governmental laws or
restrictions; (iv) reduced availability of public information concerning
issuers; (v) accounting, auditing and financial reporting standards or other
regulatory practices and requirements that are not uniform when compared to
those applicable to domestic companies; and (vi) limitations on foreign
ownership of equity securities. Also, securities of many foreign companies may
be less liquid and the prices more volatile than those of domestic companies.
With certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal of
funds or other assets of the Funds, including the withholding of dividends.
RESTRICTED AND ILLIQUID SECURITIES. Pilgrim High Yield Fund may invest up
to 15% of its net assets in illiquid securities, but has no percentage limit on
restricted securities that are liquid. Nicholas-Applegate High Yield Bond Fund
may invest up to 15% of its net assets in restricted securities and illiquid
securities. Generally, a security is considered illiquid if it cannot be
disposed of within seven days at approximately the value at which it is carried.
Illiquidity might prevent the sale of the security at a time when the adviser
might wish to sell, and these securities could have the effect of decreasing the
overall level of a Fund's liquidity. Further, the lack of an established
secondary market may make it more difficult to value illiquid securities.
Restricted securities, including private placements, are subject to legal
or contractual restrictions on resale. They can be eligible for purchase without
registration with the SEC by certain institutional investors known as "qualified
institutional buyers." For Pilgrim High Yield Fund, restricted securities could
be treated as liquid. Restricted securities that are treated as liquid could be
less liquid than registered securities traded on established secondary markets.
USE OF DERIVATIVES. Generally, derivatives are financial instruments whose
performance is derived, at least in part, from the performance of an underlying
asset or assets. Pilgrim High Yield Fund may write covered call options,
purchase call options, and engage in financial futures and related options for
hedging purposes. Pilgrim High Yield Fund expects that these instruments
ordinarily will not be used; however, the Fund may occasionally use these
techniques. Pilgrim High Yield Fund will not invest in highly leveraging
derivatives, such as interest-only or principal-only stripped mortgage-backed
securities or swaps. Nicholas-Applegate High Yield Bond Fund may use options,
futures contracts and interest rate and currency swaps as hedging techniques.
Mortgage-backed securities in which the Funds may invest may be considered to be
derivatives.
-12-
<PAGE>
A risk of using financial futures contracts for hedging purposes is that
the adviser might imperfectly judge the market's direction, so that the hedge
might not correlate to the market's movements and may be ineffective.
Furthermore, if a Fund buys a futures contract to gain exposure to securities,
the Fund is exposed to the risk of change in the value of the underlying
securities.
BORROWING. Pilgrim High Yield Fund may borrow from banks solely for
temporary or emergency purposes up to 5% of total assets. Delayed delivery
transactions are not subject to this limit on borrowings. Nicholas-Applegate
High Yield Bond Fund may borrow up to 20% of its total assets for temporary,
extraordinary or emergency purposes. Nicholas-Applegate High Yield Bond Fund may
also borrow through reverse repurchase agreements, uncovered short sales and
other techniques. Total borrowings by Nicholas-Applegate High Yield Bond Fund
may not exceed one-third of the Fund's total assets. Borrowing may exaggerate
the effect of any increase or decrease in the value of portfolio securities or
the net asset value (NAV) of a Fund, and money borrowed will be subject to
interest costs.
LENDING PORTFOLIO SECURITIES. Pilgrim High Yield Fund may lend portfolio
securities in an amount up to 33 1/3 % of total Fund assets to broker-dealers,
major banks, or other recognized domestic institutional borrowers of securities.
Nicholas-Applegate High Yield Bond Fund may lend up to 30% of its total assets.
As with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower fail financially.
TEMPORARY DEFENSIVE AND OTHER SHORT-TERM POSITIONS. Each Fund may, on a
temporary basis, invest all of its assets in short-term instruments to maintain
liquidity or for temporary defensive purposes. When pursuing this strategy,
Pilgrim High Yield Fund will normally invest in short-term debt instruments that
do not have a maturity of greater than one year. The short-term instruments in
which both Funds may invest include: U.S. Government securities; other
high-quality corporate debt securities; commercial paper; bank obligations,
including certificates of deposit, time deposits and bankers' acceptances;
repurchase agreements; and other high-quality short-term debt securities.
COMPARISON OF FEES AND EXPENSES
The following describes and compares the fees and expenses that you may pay
if you buy and hold shares of the Funds.
The operating expenses of Pilgrim High Yield Fund, expressed as a ratio of
expenses to average daily net assets ("expense ratio") currently are the same as
those of Nicholas-Applegate High Yield Bond Fund, except that the net expenses
for Class A shares are 0.10% lower for Pilgrim High Yield Fund. The Funds each
have the same management fee at an annual rate of 0.60% of the Fund's average
daily net assets. The fees for distribution and shareholder servicing for
Pilgrim High Yield Fund are the same as Nicholas-Applegate High Yield Fund, with
the exception of Class A, for which they are 0.10% lower for Pilgrim High Yield
Fund.
Expense limitation arrangements are in place for both funds, under which
the adviser for each Fund limits the ordinary operating expenses borne by the
Fund. Without these expense limitation arrangements, the expense ratio for each
Class of Pilgrim High Yield Fund would have been lower than the expense ratio
for the same Class of Nicholas-Applegate High Yield Bond Fund. For the calendar
year ended December 31, 1998, for example, the expense ratio for Class A shares
would have been 1.11% for Pilgrim High Yield Fund and 1.61% for
Nicholas-Applegate High Yield Bond Fund. This information and similar
information for the other Classes is shown in the table below under the caption
"Total Fund Operating Expenses." The current expense limitation arrangement for
Pilgrim High Yield Fund will remain in effect through December 31, 1999.
Effective January 1, 2000 and continuing for at least two years from the date of
the Reorganization, the expense limitation for Pilgrim High Yield Fund will
increase by 0.10% for each Class, at which time the expense limit will be 1.10%
for Class A and Class Q shares, and 1.85% for Class B and Class C shares. As a
result, the expense limit from January 1, 2000 through the second anniversary of
the Reorganization will be the same as the current expense limit on Class A
-13-
<PAGE>
shares of Nicholas-Applegate High Yield Bond Fund and 0.10% higher than the
current expense limit on Class B, Class C and Class Q shares of
Nicholas-Applegate High Yield Bond Fund. This does not necessarily mean that
ordinary operating expenses will increase on and after January 1, 2000; these
expenses would increase only if at that time they exceed the levels of the
current expense limitations.
The current expenses of each Fund, and PRO FORMA expenses giving effect to
the proposed Reorganization, are shown in the table below. Expenses for Pilgrim
High Yield Fund are based upon the annual operating expenses incurred by the
Class A and Class B shares for the calendar year ended December 31, 1998, and
estimated expenses for Class C and Class Q shares for that same period. Expenses
for Nicholas-Applegate High Yield Bond Fund are based upon the annualized
operating expenses incurred by the Class A, Class B, Class C and Class Q shares
for the period from March 27, 1998 (the inception date for Classes A, B, C and
Q) through December 31, 1998. PRO FORMA fees show fees of Pilgrim High Yield
Fund after giving effect to the proposed reorganization.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets,
shown as a ratio of expenses to average daily net assets)(1)
<TABLE>
<CAPTION>
DISTRIBUTION AND
SHAREHOLDER TOTAL FUND FEE
MANAGEMENT SERVICING OTHER OPERATING WAIVER BY NET FUND
FEES (12b-1) FEES(2) EXPENSES EXPENSES ADVISER(3) EXPENSES
---- --------------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Pilgrim High Yield 0.60% 0.25% 0.26% 1.11% (0.11)% 1.00%
Nicholas-Applegate High Yield 0.60% 0.35% 0.66% 1.61% (0.51)% 1.10%
Pro Forma 0.60% 0.25% 0.25% 1.10% (0.10)% 1.00%
CLASS B
Pilgrim High Yield 0.60% 1.00% 0.26% 1.86% (0.11)% 1.75%
Nicholas-Applegate High Yield 0.60% 1.00% 0.63% 2.23% (0.48)% 1.75%
Pro Forma 0.60% 1.00% 0.25% 1.85% (0.10)% 1.75%
CLASS C
Pilgrim High Yield 0.60% 1.00% 0.26% 1.86% (0.11)% 1.75%
Nicholas-Applegate High Yield 0.60% 1.00% 0.63% 2.23% (0.48)% 1.75%
Pro Forma 0.60% 1.00% 0.25% 1.85% (0.10)% 1.75%
CLASS Q
Pilgrim High Yield 0.60% 0.25% 0.26% 1.11% (0.11)% 1.00%
Nicholas-Applegate High Yield 0.60% 0.25% 0.61% 1.46% (0.46)% 1.00%
Pro Forma 0.60% 0.25% 0.25% 1.10% (0.10)% 1.00%
</TABLE>
- ----------
(1) Pilgrim High Yield Fund's fiscal year ends on June 30, while
Nicholas-Applegate High Yield Bond Fund's fiscal year ends on March 31. To
compare the expenses of the two Funds, expenses are shown for each Fund,
and on a pro forma basis, based upon expenses incurred by each Fund for the
calendar year ended December 31, 1998. The expenses of Nicholas-Applegate
High Yield Bond Fund are annualized.
(2) For Nicholas-Applegate Fund, distribution and shareholder servicing
expenses are aggregated in this presentation for better comparison with
Pilgrim High Yield Fund. This is different from the presentation in the
table on "Investor Expenses" in the Nicholas-Applegate Prospectus. As a
result of distribution (Rule 12b-1) fees, a long term investor may pay more
than the economic equivalent of the maximum sales charge allowed by the
Rules of the National Association of Securities Dealers, Inc. (NASD).
(3) For the calendar year ended December 31, 1998, Pilgrim Investments agreed
to limit expenses (excluding 12b-1 fees, interest, taxes, brokerage and
extraordinary expenses) to 0.75% for all classes of shares of Pilgrim High
Yield Fund, subject to possible later recoupment. That expense limitation
amount will apply to Pilgrim High Yield Fund until December 31, 1999.
Effective January 1, 2000 and continuing until at least two years from the
date of the Reorganization, the expense limit for Pilgrim High Yield Fund
as described above will increase to 0.85% for each class. There can be no
assurance that the expense limitation will be extended beyond two years
from the date of the Reorganization.
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<PAGE>
Nicholas-Applegate Capital Management has agreed to waive or defer its
management fees and to pay other operating expenses (excluding interest,
taxes, brokerage commissions and other portfolio transaction expenses,
capital expenditures and extraordinary expenses) otherwise payable by
Nicholas-Applegate High Yield Bond Fund, subject to possible later
recoupment, so that the expenses for Class A, B, C and Q Shares will not
exceed the following expense ratios on an annual basis through the Closing
of the Reorganization: 1.10%, 1.75%, 1.75% and 1.00%, respectively.
Class A, Class B and Class C Shares of Pilgrim High Yield Fund issued to a
shareholder in connection with the Reorganization will be subject to the same
contingent deferred sale charge, if any, applicable to the corresponding shares
of Nicholas-Applegate High Yield Bond Fund held by that shareholder immediately
prior to the Reorganization. In addition, the period that the shareholder held
the Nicholas-Applegate High Yield Bond Fund shares will be included in the
holding period of the Pilgrim High Yield Fund shares for purposes of calculating
any contingent deferred sales charge. Similarly, Class B shares of Pilgrim High
Yield Fund issued to a shareholder in connection with the Reorganization will
convert to Class A seven years after the date that the corresponding Class B
shares of Nicholas-Applegate High Yield Bond Fund were purchased by the
shareholder. Purchases of shares of Pilgrim High Yield Fund after the
Reorganization will be subject to the sales load structure described in the
table below for Pilgrim High Yield Fund.
TRANSACTION FEES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Q
------- ------- ------- -------
Maximum sales charge (load) imposed
on purchases (as a percentage of
offering price)
PILGRIM HIGH YIELD FUND 4.75%(1) None None None
NICHOLAS-APPLEGATE HIGH YIELD BOND FUND 4.75%(1) None None None
Maximum deferred sales charge (load)
(as a percentage of the lower of
original purchase price or
redemption proceeds)
PILGRIM HIGH YIELD FUND None(2) 5.00%(3) 1.00%(4) None
NICHOLAS-APPLEGATE HIGH YIELD BOND FUND None(2) 5.00%(3) 1.00%(4) None
Neither Pilgrim High Yield Fund nor Nicholas-Applegate High Yield Bond Fund has
any redemption fees, exchange fees or sales charges on reinvested dividends.
- ----------
(1) Reduced for purchases of $50,000 and over. See "Class A Shares: Initial
Sales Charge Alternative" in Appendix B and "How Sales Charges are
Calculated" in the Nicholas-Applegate Prospectus.
(2) A contingent deferred sales charge of no more than 1.00% may be assessed on
redemptions of Class A shares that were purchased without an initial sales
charge as part of an investment of $1 million or more. See "Class A Shares:
Initial Sales Charge Alternative" in Appendix B and "Contingent Deferred
Sales Charge" in the Nicholas-Applegate Prospectus.
(3) Imposed upon redemption within 6 years from purchase. The fee has scheduled
reductions after the first year. See "Class B Shares: Deferred Sales Charge
Alternative" in Appendix B and "Contingent Deferred Sales Charge" in the
Nicholas-Applegate Prospectus.
(4) Imposed upon redemption within 1 year from purchase.
As shown above, the shareholder transaction expenses of the two Funds are
the same for Classes B, C and Q. However, there are some differences for Class
A. Specifically, the initial sales charge for both Funds is the same, except
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<PAGE>
that the reduced sales charge for purchases of $50,000 to $99,999 is as follows
for each Fund:
Pilgrim High Yield Nicholas-Applegate High Yield
------------------ -----------------------------
4.50% 4.00%
In addition, there are certain differences between the contingent deferred sales
charge imposed on certain purchases of Class A shares:
<TABLE>
<CAPTION>
TIME PERIOD DURING
CDSC WHICH CDSC APPLIES
------------------------------- -------------------------------
Pilgrim Nicholas-Applegate Pilgrim Nicholas-Applegate
High Yield High Yield High Yield High Yield
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CDSC on Purchases of:
$1,000,000 to $2,499,999 1.00% 1.00% 2 Years 1 Year
$2,500,000 to $4,999,999 0.50% 1.00% 1 Year 1 Year
$5,000,000 and over 0.25% 1.00% 1 Year 1 Year
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
Funds. The example assumes that you invest $10,000 in each Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. The 5% return is an
assumption and is not intended to portray past or future investment results.
Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:
<TABLE>
<CAPTION>
NICHOLAS-APPLEGATE PRO FORMA:
PILGRIM HIGH YIELD HIGH YIELD THE FUNDS COMBINED**
------------------------- ------------------------- -------------------------
1 3 5 10 1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years Year Years Years Years
---- ----- ----- ----- ---- ----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $572 $778 $1001 $1641 $582 $808 $1052 $1752 $572 $778 $1001 $1641
Class B 678 851 1149 1864* 678 851 1149 1811* 678 851 1149 1864*
Class C 278 551 949 2062 278 551 949 2062 278 551 949 2062
Class Q 102 318 552 1225 102 318 552 1225 102 318 552 1225
You would pay the following expenses if you did not redeem your shares:
NICHOLAS-APPLEGATE PRO FORMA:
PILGRIM HIGH YIELD HIGH YIELD THE FUNDS COMBINED**
------------------------- ------------------------- -------------------------
1 3 5 10 1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years Year Years Years Years
---- ----- ----- ----- ---- ----- ----- ----- ---- ----- ----- -----
Class A $572 $778 $1001 $1641 $582 $808 $1052 $1752 $572 $778 $1001 $1641
Class B 178 551 949 1864* 178 551 949 1811* 178 551 949 1864*
Class C 178 551 949 2062 178 551 949 2062 178 551 949 2062
Class Q 102 318 552 1225 102 318 552 1225 102 318 552 1225
</TABLE>
- ----------
* The ten year calculations for Class B shares assume conversions of the
Class B shares to Class A shares at the end of the eighth year following
the date of purchase for Pilgrim High Yield Fund and Pro Forma, and the
seventh year following the date of purchase for Nicholas-Applegate High
Yield Bond Fund.
** Estimated.
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<PAGE>
EXPENSE REIMBURSEMENT ARRANGEMENTS
Pilgrim Investments has entered into an expense limitation agreement with
respect to Pilgrim High Yield Fund, pursuant to which Pilgrim Investments has
agreed to waive or limit its fees and to assume other expenses through December
31, 1999 so that the total annual ordinary operating expenses of each Class of
the Fund (excluding interest, taxes, brokerage commissions, extraordinary
expenses such as litigation, other expenses not incurred in the ordinary course
of the Fund's business, expenses of any counsel or other persons or services
retained by the Fund's directors who are not "interested persons" of Pilgrim
Investments, and 12b-1 fees) do not exceed 0.75%. Beginning January 1, 2000 and
continuing at least two years from the date of the Reorganization, the expense
limitation will be 0.85%. Pilgrim Investments may extend the period of these
limitations without the consent of the Fund. Pilgrim High Yield Fund will at a
later date reimburse Pilgrim Investments for management fees waived and other
expenses assumed by Pilgrim Investments during the previous 36 months, but only
if, after such reimbursement, the Fund's expense ratio does not exceed 0.75%
with respect to fees waived and expenses assumed through December 31, 1999, and
0.85% with respect to fees waived and expenses assumed after that date. After
the second anniversary of the Reorganization, the expense limitation agreement
may be terminated by Pilgrim Investments or the Fund upon 90 days written
notice.
For Nicholas-Applegate High Yield Bond Fund, Nicholas-Applegate Capital
Management has agreed to waive or defer management fees and absorb other
operating expenses of the Fund (including 12b-1 fees, but excluding interest,
taxes, brokerage commissions and other portfolio transaction expenses, capital
expenditures and extraordinary expenses), subject to later reimbursement, so
that the annual operating expenses for the Class A, B, C and Q Shares of the
Fund will not exceed 1.10%, 1.75%, 1.75% and 1.00%, respectively, through the
Closing of the Reorganization. Nicholas-Applegate High Yield Bond Fund will in
later years reimburse Nicholas-Applegate Capital Management for fees deferred or
other expenses paid during the previous 5 years, but only if, after such
reimbursement, the operating expenses for the Fund are less than the percentage
limitation set forth above for any such year. As of [date], the unreimbursed
amount was $________. If the Reorganization is approved, Pilgrim High Yield Fund
will not be obligated to reimburse Nicholas-Applegate Capital Management for
fees waived or expenses reimbursed prior to the Reorganization.
ADMINISTRATIVE FEES
Nicholas-Applegate High Yield Bond Fund pays to Nicholas-Applegate Capital
Management a monthly administrative fee at an annual rate up to 0.10% of the
Fund's average net assets attributable to Class A, Class B and Class C. Pilgrim
Group, Inc. has an agreement with the Pilgrim High Yield Fund under which
Pilgrim responds to written and telephonic inquiries from shareholders of the
Fund for a monthly fee on a per-contact basis. For the 12 months ending December
31, 1998, this fee was equal to an annual rate of 0.01% of the Fund's average
daily net assets.
In addition, Nicholas-Applegate High Yield Bond Fund pays Investment
Company Administration, LLC a monthly fee at an annual rate ranging from 0.05%
to 0.01% of the Fund's average net assets, with a minimum of $40,000. Pilgrim
High Yield Fund does not pay any separate administrative fees.
-17-
<PAGE>
ADDITIONAL INFORMATION ABOUT PILGRIM HIGH YIELD FUND
INVESTMENT PERSONNEL
Kevin G. Mathews, Senior Vice President and Senior Portfolio Manager of
Pilgrim Investments, has served as Portfolio Manager of Pilgrim High Yield Fund
since June 1995, and also served as Portfolio Manager of Pilgrim Government
Securities Income Fund from June 1995 through September 1996. Prior to joining
Pilgrim Investments, Mr. Mathews was a Vice President and Senior Portfolio
Manager with Van Kampen American Capital. Since 1987, Mr. Mathews'
responsibilities have included the management of open-end high yield bond funds,
two New York Stock Exchange listed closed-end bond funds, variable annuity high
yield products and individual institutional high yield asset managed accounts.
In a prior position, Mr. Mathews was a high yield portfolio fixed income credit
analyst. Mr. Mathews received a B.A. from the University of Illinois and an
M.B.A. from Drake University.
PERFORMANCE OF PILGRIM HIGH YIELD FUND
The bar chart below is intended to show changes in the performance of
Pilgrim High Yield Fund's Class A shares from year to year. The bar chart does
not reflect the sales load on Class A shares. If the bar chart included the
sales load, returns would be less than those shown. The Fund's past performance
is not necessarily an indication of how the Fund will perform in the future.
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Return 1.87% -9.49% 29.44% 16.19% 18.52% -1.55% 17.71% 15.76% 14.98% -2.96%
During the period shown in the chart, the Fund's best quarterly performance
was 14.83% for the quarter ended March 31, 1991, and the Fund's worst quarterly
performance was -7.91% for the quarter ended September 30, 1998.
The table below shows what the returns of Pilgrim High Yield Fund would
equal if you averaged out actual performance over various lengths of time,
compared to the Lehman High Yield Index, an unmanaged index. The Lehman High
Yield Index has an inherent performance advantage over the Fund since it has no
cash in its portfolio, imposes no sales charges and incurs no operating
expenses. An investor cannot invest directly in an index. The Fund's performance
reflected in the table assumes the deduction of the maximum sales charge in all
cases.
AVERAGE ANNUAL TOTAL RETURNS for the periods ended December 31, 1998*
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Pilgrim High Yield Class A -7.60% 7.36% 8.88%
Pilgrim High Yield Class B -8.02% -- --
Lehman High Yield Index 1.87% 8.57% 10.55%
* Class C and Class Q shares of Pilgrim High Yield Fund were not offered
during the period ended December 31, 1998
The table below shows the performance of Pilgrim High Yield Fund if sales
charges are not reflected.
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 1998
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Pilgrim High Yield Class A -2.96% 8.40% 9.42%
Pilgrim High Yield Class B -3.60% -- --
Additional information about Pilgrim High Yield Fund is included in
Appendix B to this Proxy/Prospectus.
-18-
<PAGE>
INFORMATION ABOUT THE REORGANIZATION
THE REORGANIZATION AGREEMENT. As stated above, the Reorganization Agreement
provides for the transfer of all or substantially all of the assets of
Nicholas-Applegate High Yield Bond Fund to Pilgrim High Yield Fund in exchange
for the assumption by Pilgrim High Yield Fund of all of the liabilities of
Nicholas-Applegate High Yield Bond Fund, and that number of Class A, Class B,
Class C and Class Q shares in Pilgrim High Yield Fund having an aggregate net
asset value equal to the aggregate net asset value of the Class A, Class B,
Class C and Class Q shares, respectively, of Nicholas-Applegate High Yield Bond
Fund as of the close of business on the business day preceding the Closing.
Nicholas-Applegate High Yield Bond Fund will distribute the shares of common
stock of Pilgrim High Yield Fund received in the exchange to the shareholders of
Nicholas-Applegate High Yield Bond Fund in complete liquidation of the
Nicholas-Applegate High Yield Bond Fund.
After the Reorganization, each shareholder of Nicholas-Applegate High Yield
Bond Fund will own shares in Pilgrim High Yield Fund having an aggregate net
asset value equal to the aggregate net asset value of each respective class of
shares in Nicholas-Applegate High Yield Bond Fund held by that shareholder as of
the close of business on the business day preceding the Closing. Shareholders of
Class A, B, C or Q shares of Nicholas-Applegate High Yield Bond Fund will
receive shares of the corresponding Class of Pilgrim High Yield Fund. In the
interest of economy and convenience, shares of Pilgrim High Yield Fund generally
will not be represented by physical certificates.
Until the Closing, shareholders of Nicholas-Applegate High Yield Bond Fund
will continue to be able to redeem their shares. Redemption requests received
after the Closing will be treated as requests received by Pilgrim High Yield
Fund for the redemption of its shares received by the shareholder in the
Reorganization.
The obligations of the Funds under the Reorganization Agreement are subject
to various conditions, including approval of the shareholders of
Nicholas-Applegate High Yield Bond Fund. The Reorganization also requires that
all filings be made with, and all authorizations be received from, the SEC and
state securities commissions as may be necessary in the opinion of counsel to
permit the parties to carry out the transactions contemplated by the
Reorganization Agreement. The Reorganization Agreement may be terminated by
mutual agreement of the parties, upon termination of the Asset Purchase
Agreement discussed below, or on certain other grounds. For a complete
description of the terms and conditions of the Reorganization, see the
Reorganization Agreement at Appendix A.
Shareholders of Nicholas-Applegate High Yield Bond Fund are also being
asked to vote in a separate proxy statement to approve Pilgrim Investments as
investment manager to Nicholas-Applegate High Yield Bond Fund. If the
Reorganization Agreement is not approved, but that other proposal is approved,
Pilgrim Investments will become the investment manager to Nicholas-Applegate
High Yield Bond Fund. If neither proposal is approved, Nicholas-Applegate High
Yield Bond Fund will remain in existence and will continue to be managed by
Nicholas-Applegate Capital Management, unless the Board of Trustees approves
other action.
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REASONS FOR THE REORGANIZATION. The Reorganization was proposed to the
Board in connection with an Asset Purchase Agreement among Nicholas Applegate
Capital Management, Nicholas-Applegate Securities, Pilgrim America Capital
Corporation, Pilgrim Investments, Inc. and Pilgrim Securities, Inc. dated
January 28, 1999. Pursuant to that Agreement, Nicholas-Applegate Capital
Management and Nicholas-Applegate Securities have agreed to sell certain assets
related to the Nicholas-Applegate Mutual Funds to Pilgrim America Capital
Corporation and its subsidiaries. In connection with that transaction, Pilgrim
Investments would become, subject to shareholder approval, the investment
adviser to certain funds of Nicholas-Applegate Mutual Funds other than the
Nicholas-Applegate High Yield Bond Fund, and those funds would become a part of
the Pilgrim family of funds. Nicholas-Applegate Capital Management will continue
to advise a number of those funds as sub-adviser. Nicholas-Applegate entered
into this transaction because it has determined that it is no longer a business
objective of Nicholas-Applegate to engage in the retail distribution of mutual
funds, and that it wishes to focus on managing money for institutional clients.
Because the Pilgrim High Yield Fund may invest in substantially the same types
of securities as the Nicholas-Applegate High Yield Bond Fund, the two Funds
would be duplicative.
The proposed Reorganization was presented to the Board of Trustees of
Nicholas-Applegate High Yield Bond Fund for consideration and approval at a
meeting on February 19, 1999. All of that Fund's Trustees were present at the
meeting. For the reasons discussed below, the Trustees, including all of the
Trustees who are not "interested persons" of Nicholas-Applegate Mutual Funds (as
defined in the Investment Company Act of 1940), determined that the interests of
the shareholders of Nicholas-Applegate High Yield Bond Fund will not be diluted
as a result of the proposed Reorganization, and that the proposed Reorganization
is in the best interests of Nicholas-Applegate High Yield Bond Fund and its
shareholders.
The Reorganization will allow Nicholas-Applegate High Yield Bond Fund's
shareholders to continue to participate in a professionally-managed portfolio
consisting primarily of high yield debt securities. As Class A, Class B, Class C
and Class Q Shareholders of Pilgrim High Yield Fund, these shareholders will
continue to be able to exchange into certain of the current Nicholas-Applegate
Mutual Funds that, subject to approval of shareholders of each of the Funds, are
expected to become a part of the Pilgrim family of funds, and will also be able
to exchange into shares of other currently existing Pilgrim funds that offer the
same class of shares. A list of the current Nicholas-Applegate Mutual Funds that
are expected to become a part of the Pilgrim family of funds, as well as the
current Pilgrim mutual funds, and their available classes, is attached as
Appendix D.
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BOARD CONSIDERATION. The Board of Trustees of NAMF, in recommending the
proposed transaction, considered a number of factors, including the following:
(1) expense ratios and information regarding fees and expenses of
Nicholas-Applegate High Yield Bond Fund and Pilgrim High Yield Fund,
including the planned expense limitation arrangements offered by
Pilgrim Investments and Nicholas-Applegate Capital Management and the
fact that existing shareholders would retain the current sales charge
structure for shares held at the time of the Reorganization;
(2) the terms and conditions of the Reorganization, whether it is in the
best interests of Nicholas-Applegate High Yield Bond Fund, and whether
it would result in a dilution of the interests of Nicholas-Applegate
High Yield Bond Fund's current shareholders;
(3) the relative investment performance and risks of Pilgrim High Yield
Fund as compared to Nicholas-Applegate High Yield Bond Fund;
(4) the similarity of Pilgrim High Yield Fund's investment objectives,
policies and restrictions with those of Nicholas-Applegate High Yield
Bond Fund and the fact that the two Funds are duplicative;
(5) the capabilities and resources of Pilgrim Investments and its
affiliates in the areas of investment management, administration and
shareholder servicing and the portfolio management team servicing
Pilgrim High Yield Fund;
(6) the tax-free nature of the Reorganization to Nicholas-Applegate High
Yield Bond Fund and its shareholders;
(7) the fact that neither Nicholas-Applegate High Yield Bond Fund nor its
shareholders will bear the expenses of the Reorganization; and
(8) the fact that Nicholas-Applegate Capital Management has determined
that it does not want to continue to engage in the retail distribution
of mutual funds, and wants to focus on managing money for
institutional clients, so that in any event Nicholas-Applegate Capital
Management would no longer be available to manage the retail
Nicholas-Applegate mutual funds except in a sub-advisory capacity, and
that in furtherance of this goal Nicholas-Applegate Capital Management
has entered into an Asset Purchase Agreement with Pilgrim America
Capital Corporation and its affiliates to sell certain assets related
to the management of the Nicholas-Applegate High Yield Bond Fund and
other Nicholas-Applegate Funds.
THE TRUSTEES OF NAMF RECOMMEND THAT NICHOLAS-APPLEGATE HIGH YIELD BOND
FUND'S SHAREHOLDERS APPROVE THE REORGANIZATION WITH PILGRIM HIGH YIELD FUND.
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TAX CONSIDERATIONS. The Reorganization is intended to qualify for Federal
income tax purposes as a tax-free reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, pursuant to
this treatment, neither Nicholas-Applegate High Yield Bond Fund nor its
shareholders nor Pilgrim High Yield Fund is expected to recognize any gain or
loss for federal income tax purposes from the transactions contemplated by the
Reorganization Agreement. As a condition to the Closing of the Reorganization,
the Funds will receive an opinion from the law firm of Dechert Price & Rhoads to
the effect that the Reorganization will qualify as a tax-free reorganization for
Federal income tax purposes. That opinion will be based in part upon certain
assumptions and upon certain representations made by the Funds.
Immediately prior to the Reorganization, Nicholas-Applegate High Yield Bond
Fund will pay a dividend or dividends which, together with all previous
dividends, will have the effect of distributing to its shareholders all of
Nicholas-Applegate High Yield Bond Fund's investment company taxable income for
taxable years ending on or prior to the Reorganization (computed without regard
to any deduction for dividends paid) and all of its net capital gain, if any,
realized in taxable years ending on or prior to the Reorganization (after
reduction for any available capital loss carryforward). Such dividends will be
included in the taxable income of Nicholas-Applegate High Yield Bond Fund's
shareholders as ordinary income and capital gain, respectively.
As of [date], Nicholas-Applegate High Yield Bond Fund had accumulated
capital loss carryforwards in the amount of approximately $______. After the
Reorganization, these losses will be available to Pilgrim High Yield Fund to
offset its capital gains, although the amount of these losses which may offset
Pilgrim High Yield Fund's capital gains in any given year may be limited. As a
result of this limitation, it is possible that Pilgrim High Yield Fund may not
be able to use these losses as rapidly as Nicholas-Applegate High Yield Bond
Fund might have, and part of these losses may not be useable at all. The ability
of Pilgrim High Yield Fund to absorb losses in the future depends upon a variety
of factors that cannot be known in advance, including the existence of capital
gains against which these losses may be offset. In addition, the benefits of any
capital loss carryforwards currently are available only to shareholders of
Nicholas-Applegate High Yield Bond Fund. After the Reorganization, however,
these benefits will inure to the benefit of all shareholders of Pilgrim High
Yield Fund.
EXPENSES OF THE REORGANIZATION. Pilgrim Investments or its affiliates will
bear the expenses of Nicholas-Applegate High Yield Bond Fund relating to the
proposed Reorganization.
ADDITIONAL INFORMATION ABOUT THE FUNDS
FORM OF ORGANIZATION. Pilgrim High Yield Fund is a series of Pilgrim
Investments Funds, Inc. ("PIF"), which is a Maryland corporation. PIF offers
another series that is not involved in this Reorganization. Nicholas-Applegate
High Yield Bond Fund is a series of Nicholas-Applegate Mutual Funds ("NAMF"),
which is a Delaware business trust. NAMF also offers other series, which are not
involved in the Reorganization. PIF and NAMF are each governed by a Board of
Directors/Trustees.
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VOTING RIGHTS. Shares of PIF and NAMF entitle their holders to one vote per
share. Shares have noncumulative voting rights and no preemptive or subscription
rights. PIF and NAMF are not required to hold shareholder meetings annually,
although shareholder meetings may be called for purposes such as electing
Trustees, changing fundamental policies or approving an investment management
agreement.
PIF's By-Laws provide that meetings of shareholders may be called at any
time by the Directors, or by the President, a Vice President, the Secretary or
an Assistant Secretary, and shall be called by the Secretary upon the written
request of the holder or holders of twenty-five percent (ten percent in the case
of a meeting for the purpose of removing a director or directors) or more of the
votes entitled to be cast at such meeting. Any such request must state the
purpose of the proposed meeting. NAMF's Declaration of Trust provides that a
meeting of shareholders may be called at any time by a majority of the Trustees
or by any Trustee upon written request of ten percent of the shares of NAMF.
DIVIDENDS AND OTHER DISTRIBUTIONS. Each Fund pays monthly dividends from
net investment income, and pays capital gains, if any, at least annually. For
each Fund, dividends and distributions are determined on a class basis.
Dividends and distributions of each Fund are automatically reinvested in
additional shares of the respective class of that Fund, unless the shareholder
elects to receive distributions in cash.
If the Reorganization Agreement is approved by Nicholas-Applegate High
Yield Bond Fund's shareholders, then as soon as practicable before the Closing,
Nicholas-Applegate High Yield Bond Fund will pay its shareholders a cash
distribution of all undistributed 1999 net investment income and undistributed
realized net capital gains.
CAPITALIZATION. The following table shows on an unaudited basis the
capitalization of Nicholas-Applegate High Yield Bond Fund and Pilgrim High Yield
Fund as of December 31, 1998, and on a PRO FORMA basis as of December 31, 1998
giving effect to the Reorganization:
NET ASSET VALUE
NET ASSETS PER SHARE SHARES OUTSTANDING
---------- --------- ------------------
PILGRIM HIGH YIELD FUND
Class A $127,391,677 $6.17 20,640,994
Class B $233,916,497 $6.16 37,978,541
Class C -- -- --
Class Q -- -- --
NICHOLAS-APPLEGATE HIGH YIELD BOND FUND
Class A $17,313,361 $11.62 1,489,678
Class B $42,787,066 $11.62 3,680,867
Class C $20,161,834 $11.63 1,733,990
Class Q $ 5,014,783 $11.64 430,943
PRO FORMA - PILGRIM HIGH YIELD FUND INCLUDING NICHOLAS-APPLEGATE HIGH YIELD BOND
FUND
Class A $144,705,038 $6.17 23,453,005
Class B $276,703,563 $6.16 44,919,410
Class C $ 20,161,834 $6.16 3,273,025
Class Q $ 5,014,783 $6.17 814,326
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GENERAL INFORMATION
SOLICITATION OF PROXIES
Solicitation of proxies is being made primarily by the mailing of this
Notice and Proxy Statement with its enclosures on or about March __, 1999.
Shareholders of Nicholas-Applegate High Yield Bond Fund whose Shares are held by
nominees, such as brokers, can vote their proxies by contacting their respective
nominee. In addition to the solicitation of proxies by mail, employees of
Pilgrim Investments and its affiliates, without additional compensation, may
solicit proxies in person or by telephone, telegraph, facsimile, or oral
communication. Nicholas-Applegate High Yield Bond Fund has retained D.F. King &
Co., a professional proxy solicitation firm, to assist with any necessary
solicitation of proxies. Shareholders of Nicholas-Applegate High Yield Bond Fund
may receive a telephone call from the professional proxy solicitation firm
asking the shareholder to vote. The costs associated with such solicitation will
be paid by Pilgrim Investments or its affiliates.
A shareholder may revoke the accompanying proxy at any time prior to its
use by filing with NAMF a written revocation or duly executed proxy bearing a
later date. In addition, any shareholder who attends the Meeting in person may
vote by ballot at the Meeting, thereby canceling any proxy previously given. The
persons named in the accompanying proxy will vote as directed by the proxy, but
in the absence of voting directions in any proxy that is signed and returned,
they intend to vote FOR the Reorganization proposal and may vote in their
discretion with respect to other matters not now known to the Board of NAMF that
may be presented at the Meeting.
VOTING RIGHTS
The proposals in this proxy statement affect only Nicholas-Applegate High
Yield Bond Fund, which is one of 23 series of NAMF. As a result, the Board of
Trustees of NAMF is soliciting votes only from shareholders of
Nicholas-Applegate High Yield Bond Fund.
Each share of each class of Nicholas-Applegate High Yield Bond Fund is
entitled to one vote. Shareholders of Nicholas-Applegate High Yield Bond Fund at
the close of business on March 4, 1999 (the "Record Date") will be entitled to
be present and give voting instructions for Nicholas-Applegate High Yield Bond
Fund at the Meeting with respect to their shares owned as of that Record Date.
As of March 4, 1999, there were _____________ shares outstanding and entitled to
vote.
One-third of the shares of Nicholas-Applegate High Yield Bond Fund entitled
to vote at the meeting, represented in person or by proxy, must be present to
constitute a quorum for the transaction of Nicholas-Applegate High Yield Bond
Fund's business at the Meeting.
Approval of the Reorganization requires a vote of the lesser of (i) 67% or
more of the shares of Nicholas-Applegate High Yield Bond Fund present or
represented at the meeting, if more than 50% of the shares of Nicholas-Applegate
High Yield Bond Fund are present or represented by proxy, or (ii) more than 50%
of the shares of Nicholas-Applegate High Yield Bond Fund.
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If a quorum is not present at the Meeting, or if a quorum is present but
sufficient votes to approve any or all of the Proposals are not received, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. In determining whether to adjourn the
Meeting, the following factors may be considered: the nature of the Proposals
that are the subject of the Meeting, the percentage of votes actually cast, the
percentage of negative votes actually cast, the nature of any further
solicitation and the information to be provided to shareholders with respect to
the reasons for the solicitation. Any adjournment will require the affirmative
vote of a majority of those shares represented at the Meeting in person or by
proxy.
If a shareholder abstains from voting as to any matter, or if a broker
returns a "non-vote" proxy, indicating a lack of authority to vote on a matter,
the shares represented by the abstention or non-vote will be deemed present at
the Special Meeting for purposes of determining a quorum. However, abstentions
and broker non-votes will not be deemed represented at the Special Meeting for
purposes of calculating the vote on any matter. As a result, an abstention or
broker non-vote will have the same effect as a vote against the Reorganization.
To the knowledge of Nicholas-Applegate High Yield Bond Fund, as of February
1, 1999, no current Trustee of NAMF owns 1% or more of the outstanding shares of
the Fund and the officers and Trustees of Nicholas-Applegate High Yield Bond
Fund own, as a group, less than 1% of the shares of Nicholas-Applegate High
Yield Bond Fund.
Appendix E hereto lists the persons that, as of March 1, 1999, owned
beneficially or of record 5% or more of the outstanding shares of any class of
Nicholas-Applegate High Yield Bond Fund or Pilgrim High Yield Fund.
INTERESTS OF CERTAIN DIRECTORS AND OFFICERS
By virtue of his ownership interest in Pilgrim America Capital
Corporation, which is the indirect parent of Pilgrim Investments, Inc. and
Pilgrim Securities, Inc., each of which is a party to the transaction
described above in "Information About the Reorganization -- Reasons for the
Reorganization," Robert W. Stallings, who is Chairman of the Board, Chief
Executive Officer and President of Pilgrim Investment Funds, Inc., may be
deemed to have a substantial interest in the proposed Reorganization.
Further, by virtue of his indirect interest in Nicholas-Applegate Capital
Management, which also is a party to the transaction described above in
"Information About the Reorganization -- Reasons for the Reorganization," Arthur
E. Nicholas, President of Nicholas-Applegate Mutual Funds, may be deemed to have
a substantial interest in the proposed Reorganization.
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OTHER MATTERS TO COME BEFORE THE MEETING
NAMF has prepared and distributed a separate proxy statement addressing
additional proposals to be considered at the shareholder meeting.
Nicholas-Applegate High Yield Bond Fund does not know of any matters to be
presented at the Meeting other than those described in this Proxy
Statement/Prospectus or in that separate proxy statement. If other business
should properly come before the Meeting, the proxyholders will vote thereon in
accordance with their best judgment.
PRINCIPAL UNDERWRITER
Nicholas-Applegate Securities, whose address is 600 West Broadway, San
Diego, California 92101, is the principal underwriter for Nicholas-Applegate
High Yield Bond Fund. Pilgrim Securities, Inc., whose address is 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004, is the principal underwriter
for Pilgrim High Yield Fund, and, pursuant to an Agreement dated January 28,
1999 is the exclusive distributor for Class A, Class B, Class C and Class Q
share of Nicholas-Applegate High Yield Bond Fund.
SHAREHOLDER PROPOSALS
Proposals of shareholders must be received by NAMF a reasonable time prior
to the mailing of proxy materials for a meeting of shareholders. The submission
by a shareholder of a proposal for inclusion in a proxy statement does not
guarantee that it will be included. Shareholder proposals are subject to certain
regulations under the federal securities laws.
REPORTS TO SHAREHOLDERS
NAMF will furnish, without charge, a copy of the most recent Annual Report
regarding NAMF and the most recent Semi-Annual Report succeeding the Annual
Report, if any, on request. Requests for such reports should be directed to
[Pilgrim at 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004 or to
NAMF at (800) 992-0180.]
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED,
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
_________________, Secretary
March __, 1999
600 West Broadway
San Diego, California 92101
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APPENDIX A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this ________ day of __________________, 1999, by and between Pilgrim Investment
Funds, Inc. (the "Acquiring Company"), a Maryland Corporation, on behalf of
Pilgrim High Yield Fund (the "Acquiring Fund"), a separate series of the
Acquiring Company, and Nicholas-Applegate Mutual Funds (the "Acquired Trust"), a
Delaware business trust, on behalf of Nicholas-Applegate High Yield Bond Fund
(the "Acquired Fund"), a separate series of the Acquired Trust.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all or substantially all of
the assets of the Acquired Fund to the Acquiring Fund in exchange solely for
Class A, Class B, Class C and Class Q voting shares of common stock, $0.10 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.
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 terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer to the Acquiring Fund all or substantially all of the Acquired
Fund's assets as set forth in section 1.2, and the Acquiring Fund agrees in
exchange therefor (i) to deliver to the Acquired Fund that number of full and
fractional Class A, Class B, Class C and Class Q Acquiring Fund Shares
determined by dividing the value of the Acquired Fund's net assets attributable
to Class A, Class B, Class C and Class Q shares of the Acquired Fund computed in
the manner and as of the time and date set forth in section 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 section 2.2; and (ii) to assume all
liabilities of the Acquired Fund. Such transactions shall take place at the
closing provided for in section 3.1 (the "Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(collectively "Assets") shall consist of all assets, including, without
limitation, all cash, cash equivalents, securities, commodities and futures
interests and dividends or interest or other receivables that are owned by the
Acquired Fund and any deferred or prepaid expenses shown on the unaudited
statement of assets and liabilities of the Acquired Fund prepared as of the
effective time of the closing (the "Effective Time Statement"), prepared in
accordance with generally accepted accounting principles ("GAAP") applied
consistently with those of the Acquired Fund's most recent audited balance
sheet.
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1.3. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, 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 section 1.1
(the "Liquidation Time"), the Acquired Fund will distribute to the Acquired
Fund's shareholders of record with respect to each Class of its shares,
determined as of the Valuation Time as defined in section 2.1 (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 section 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 accounts on the share
records of the Acquiring Fund opened in the names of the Acquired Fund
Shareholders. The aggregate net asset value of Class A, Class B, Class C and
Class Q Acquiring Fund Shares to be so credited to Acquired Fund Shareholders
shall, with respect to each Class, be equal to the aggregate net asset value of
the Acquired Fund shares of that same Class owned by such shareholders as of the
Valuation Time.
1.5. The Acquiring Fund will not issue certificates representing Class A,
Class B, Class C or Class Q Acquiring Fund Shares in connection with such
exchange. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.6. Any reporting responsibility of the Acquired Fund including, without
limitation, 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 up to and including the date on which the
Acquired Fund is liquidated.
1.7. All books and records of the Acquired Fund, including all books and
records required to be maintained under the 1940 Act and the rules and
regulations thereunder, shall be available to the Acquiring Fund from and after
the Closing Date and shall be turned over to the Acquiring Fund as soon as
practicable following the Closing Date.
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2. VALUATION
2.1. The value of the Assets shall be computed as of the close of regular
trading on the New York Stock Exchange on the business day immediately preceding
the Closing Date, as defined in section 3.1 (such time and date being
hereinafter called the "Valuation Time") after the declaration and payment of
any dividends and/or other distributions on that date. The net value of the
Assets shall be computed by the Acquiring Fund and subject to adjustment by the
amount, if any, agreed to by the Acquiring Fund and Acquired Fund. In
determining the value of the securities or other portfolio assets transferred by
the Acquired Fund to the Acquiring Fund, each security or other portfolio asset
shall be priced by the Acquiring Fund in accordance with the policies and
procedures of the Acquiring Fund (subject to the second sentence hereafter) as
described in the Acquiring Fund's charter and then-current prospectus and
statement of additional information, and policies or procedures adopted by the
Acquiring Fund's Board of Directors, subject to such adjustments as agreed to by
the Acquiring Fund and the Acquired Fund. For such purposes, market quotes and
other information relating to establishing the value of such securities or other
portfolio assets shall be determined by the Acquiring Fund, with approval of the
Acquired Fund. All computations shall be made by the Acquiring Fund in
cooperation with the Acquiring Fund's auditors and the Acquired Fund's auditors,
who will apply certain procedures agreed to by the Acquiring Fund and the
Acquired Fund to test such computations. In the event of a dispute with respect
to the valuation of any portfolio security or other portfolio asset of the
Acquired Fund, the Acquiring Fund and the Acquired Fund shall, by mutual
consent, select an independent third party to resolve the matter, with the
determination of such independent party being binding upon the Acquiring Fund
and Acquired Fund.
2.2. The net asset value of a Class A, Class B, Class C or Class Q
Acquiring Fund Share shall be the net asset value per share computed with
respect to that Class as of the Valuation Time in accordance with the policies
and procedures of the Acquiring Fund as described in the Acquiring Fund's
charter and then-current prospectus and statement of additional information, and
policies or procedures adopted by the Acquiring Fund's Board of Directors.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this Agreement shall
be [date], or such later date as the parties may agree in writing (the "Closing
Date"). All acts taking place at the Closing shall be deemed to take place
simultaneously as of ___:_____M., Eastern time, on the Closing Date, unless
otherwise agreed to by the parties. The Closing shall be held at the offices of
__________________ or at such other place and time as the parties may agree.
3.2. The Acquired Fund shall deliver to the Acquiring Fund on the Closing
Date a schedule of assets as of the Valuation Time.
3.3. The Acquired Fund shall instruct Brown Brothers Harriman & Co.
("Acquired Fund Custodian"), as custodian for the Acquired Fund, to deliver at
the Closing a certificate of an authorized officer stating that (a) the Assets
shall have been delivered in proper form to State Street Bank & Trust Company,
as custodian for the Acquiring Fund, prior to or on the Closing Date and (b) 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
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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 Acquired Fund's
portfolio securities and instruments deposited with a securities depository, as
defined in Rule 17f-4 under the 1940 Act, shall be delivered as of the Closing
Date by book entry in accordance with the customary practices of such
depositories and the custodian for Acquiring Fund. The cash to be transferred by
the Acquired Fund shall be delivered by wire transfer of federal funds on the
Closing Date.
3.4. The Acquired Fund shall instruct State Street Bank & Trust Company
("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 of outstanding
Class A, Class B, Class C and Class Q 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 Acquired Fund or provide evidence reasonably 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 to effect the transactions contemplated by this
Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the New
York Stock Exchange or another primary trading market for portfolio securities
of the Acquiring Fund or the Acquired Fund 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 Acquiring Company and Board of Trustees of the
Acquired Trust, accurate appraisal of the value of the net assets with respect
to any Class 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.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Trust, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) The Acquired Fund is duly organized as a series of the Acquired 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 Acquired Trust's
Declaration of Trust, as amended, to own all of its properties and assets and to
carry on its business as it is now being conducted;
(b) The Acquired Trust is registered with the Commission as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and such registration is in full force and effect;
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(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 Securities Act of 1933, as amended (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) Other than with respect to contracts entered into in connection with
the portfolio management of the Acquired Fund which shall terminate on or prior
to the Closing Date, the Acquired Trust is not, and the execution, delivery and
performance of this Agreement by the Trust will not result, in violation of
Delaware law or of the Trust's Declaration of Trust, as amended, or By-Laws, or
of any material agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquired Fund is a party or by which it is bound, and
the execution, delivery and performance of this Agreement by the Acquired Fund
will not result in the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease, judgment
or decree to which the Acquired Fund is a party or by which it is bound;
(e) No material 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 properties or assets held
by it. The Acquired Fund knows of no facts which might form the basis for the
institution of such proceedings which would materially and adversely affect its
business 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;
(f) The statement of assets and liabilities, statements of operations and
changes in net assets, and schedule of investments of the Acquired Fund at and
for the fiscal year ended March 31, 1998, have been audited by Ernst & Young,
L.L.P., independent certified public accountants, and are in accordance with
GAAP consistently applied, and such statements and schedule (copies of which
have been furnished to the Acquiring Fund) present fairly, in all material
respects, the financial position 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;
(g) Since March 31, 1998, 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. For purposes of this subsection (g), 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 Acquired Fund
shareholders shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other tax
returns and reports of the Acquired Fund required by law to have been filed by
such dates (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
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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;
(i) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated investment company and
has elected to be treated as such, has been eligible to and has computed its
federal income tax under Section 852 of the Code, 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 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;
(j) All issued and outstanding shares of the Acquired Fund (i) 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, (ii) are, and on the Closing Date will be, duly and
validly issued and outstanding, fully paid and non-assessable, and (iii) will be
held at the time of the Closing by the persons and in the amounts set forth in
the records of the Transfer Agent, as provided in section 3.4. The Acquired Fund
does not have outstanding any options, warrants or other rights to subscribe for
or purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares;
(k) At 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, except those restrictions as to which the Acquiring Fund has received
notice and necessary documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement has been duly
authorized by all necessary action on the part of the Trustees of the Acquired
Trust, and, subject to the approval of the Acquired Fund Shareholders, this
Agreement constitutes a valid and binding obligation of the Acquired Trust, on
behalf of the Acquired Fund, enforceable in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting creditors'
rights;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for use
in any other document 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, will be accurate and complete in all material respects and will comply
in all material respects with federal securities and other laws and regulations
applicable thereto;
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(n) The current prospectus and statement of additional information of the
Acquired Fund, and each prospectus and statement of additional information of
the Acquired Fund and its predecessor, if any, used during the three years prior
to the Reorganization, 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; and
(o) Insofar as they relate to the Acquired Fund, the Registration Statement
referred to in section 5.7, and the proxy statement of the Acquired Fund to be
included in the Registration Statement (the "Proxy Statement"), and any
amendment or supplement to the foregoing, from the effective date of the
Registration Statement through the Closing Date, (i) will 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 and (ii) will 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 are made, not materially misleading;
provided, however, that the representations and warranties in this section 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.
4.2. The Acquiring Company, on behalf of the Acquiring Fund, represents and
warrants to the Acquired Fund as follows:
(a) The Acquired Fund is duly organized as a series of the Acquiring
Company, which is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland with power under the Company's
charter to own all of its properties and assets and to carry on its business as
it is now being conducted;
(b) The Acquiring Company is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration 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 Acquiring Company is not, and the execution, delivery and
performance of this Agreement by the Company will not result, in violation of
Maryland law or of the Company's charter or By-Laws, or of any material
agreement, indenture, instrument, contract, lease or other undertaking to which
the Acquiring Fund is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Acquiring Fund will not result
in the acceleration of any obligation, or the imposition of any penalty, under
any agreement, indenture, instrument, contract, lease, judgment or decree to
which the Acquiring Fund is a party or by which it is bound;
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(e) No material litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any properties or assets held
by it. The Acquiring Fund knows of no facts which might form the basis for the
institution of such proceedings which would materially and adversely affect its
business 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;
(f) The statement of assets and liabilities, statements of operations and
of changes in net assets, and schedule of investments of the Acquiring Fund at
and for the fiscal year ended June 30, 1998 have been audited by KPMG LLP,
independent certified public accountants, and are in accordance with GAAP
consistently applied, and such statements and schedule (copies of which have
been furnished to the Acquired Fund) present fairly, in all material respects,
the financial position 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;
(g) Since June 30, 1998, 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. For purposes of this subsection (g), 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
Acquiring Fund shareholders shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other tax
returns and reports of the Acquiring Fund required by law to have been filed by
such dates (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;
(i) For each taxable year of its operation, the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification as a regulated
investment company and has elected to be treated as such, has been eligible to
and has computed its federal income tax under Section 852 of the Code, 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;
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(j) All issued and outstanding shares of the Acquiring Fund (i) 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 and (ii) are, and on the Closing Date will be, duly
and validly issued and outstanding, fully paid and non-assessable. The Acquiring
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquiring Fund shares, nor is there
outstanding any security convertible into any of the Acquiring Fund shares;
(k) The Class A, Class B, Class C and Class Q Acquiring Fund Shares to be
issued and delivered to the Acquired Fund, for the account of the Acquired Fund
Shareholders, pursuant to the terms of this Agreement, will at the Closing Date
have been duly authorized and, when so issued and delivered, will be duly and
validly issued and outstanding Acquiring Fund Shares, and will be fully paid and
non-assessable;
(l) At the Closing Date, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets, free of any liens or 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;
(m) The execution, delivery and performance of this Agreement has been duly
authorized by all necessary action on the part of the Directors of the Acquiring
Company and this Agreement constitutes a valid and binding obligation of the
Company, on behalf of the Acquiring Fund, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws relating to or affecting
creditors' rights;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for use
in any other document 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, will be accurate and complete in all material respects and will comply
in all material respects with federal securities and other laws and regulations
applicable thereto;
(o) 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 prior to the Reorganization,
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; and
(p) Insofar as it may relate to the Acquiring Fund, the Registration
Statement and the Proxy Statement, and any amendment or supplement to the
foregoing, from the effective date of the Registration Statement through the
Closing Date, (i) will comply in all material respects with the provisions of
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the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) will 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 section 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
Acquired Fund for use therein.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund (each a "Fund") each (a)
covenants to 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 (i) the declaration and payment of customary dividends and other
distributions, and (ii) such changes as are contemplated by the Fund's normal
operations, and (b) shall retain exclusive control of the composition of its
portfolio until the Closing Date.
5.2. Upon reasonable notice, the Acquiring Fund's officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. The Acquired Fund covenants to call a meeting of the Acquired Fund
Shareholders entitled to vote upon this Agreement and to take all other
reasonable action necessary to obtain approval of the transactions contemplated
herein. Such meeting shall be scheduled for no later than [June 30, 1999].
5.4. The Acquired Fund covenants that the Class A, Class B, Class C and
Class Q 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.
5.5. The Acquired Fund covenants that it will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Acquired Fund Shares and the identity of any
affiliates of the Acquired Fund.
5.6. Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all actions, and do or
cause to be done, all things reasonably necessary, proper, and/or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.7. Each Fund covenants to prepare a Registration Statement on Form N-14
(the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act
and the 1940 Act in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement
with the Commission. The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus, which will
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include the Proxy Statement referred to in section 4.1(o), all to be included in
the Registration Statement, in compliance in all material respects with the 1933
Act, the 1934 Act and the 1940 Act.
5.8. The Acquired Fund covenants that it will, from time to time, as and
when reasonably requested by 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 Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Fund's title to and possession of all the assets and otherwise to
carry out the intent and purpose of this Agreement.
5.9. The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and such
of the state securities laws as it deems appropriate in order to continue its
operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund is not
restricted by this provision from taking such actions with respect to its
operations as it deems advisable after the Closing Date as circumstances change.
5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause to
be executed and delivered all such assignments, assumption agreements, releases,
and other instruments, and will take or cause to be taken such further action,
as the Acquired Fund may reasonably deem necessary or desirable in order to (i)
vest and confirm to the Acquired Fund title to and possession of all Acquiring
Fund Shares to be transferred to Acquired Fund pursuant to this Agreement and
(ii) assume the assumed liabilities from the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired
Fund shall make a liquidating distribution to its shareholders consisting of the
Class A, Class B, Class C and Class Q Acquiring Fund Shares received at the
Closing.
5.12. 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.
5.13. The Acquiring Fund covenants that the Acquiring Fund Shares issued to
each Acquired Fund shareholder pursuant to this Agreement will be subject to the
same contingent deferred sales charge schedule, if any, to which the
corresponding Acquired Fund Shares held by such shareholder prior to the
Reorganization were subject, and that the period that such Acquired Fund Shares
were held by the shareholder prior to the Reorganization will be included in the
holding period for the corresponding Acquiring Fund Shares issued to the
shareholder when calculating any contingent deferred sales charge upon
redemption of the Acquiring Fund Shares.
5.14. The Acquiring Fund covenants that the Class B Acquiring Fund Shares
issued to each Class B Acquired Fund shareholder pursuant to this Agreement will
convert to Class A Acquiring Fund Shares seven (7) years from the date that the
corresponding Class B Acquired Fund Shares were purchased by the shareholder.
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6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the Acquiring Fund's
performance of all the obligations and compliance with all the provisions to be
performed or complied with 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 Acquiring Company, with
respect to 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; and there shall be (i) no pending or threatened litigation brought by any
person against the Acquired Fund, the Acquiring Fund or their advisers,
directors, trustees or officers arising out of this Agreement (except, with
respect to the Acquired Fund or its adviser, trustees or officers, litigation
brought by the Acquiring Fund, its adviser or any of their affiliates) and (ii)
no facts known to the Acquired Fund which the Acquired Fund reasonably believes
might result in such litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquiring Company with respect to the Acquiring Fund made in this Agreement
are true and correct on 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 Acquired Fund shall reasonably request;
6.3. The Acquired Fund shall have received on the Closing Date an opinion
of Dechert Price & Rhoads, which may in whole or in part be supported by an
opinion of another firm reasonably acceptable to the Acquired Fund, in a form
reasonably satisfactory to the Acquired Fund, and dated as of the Closing Date,
to the effect that:
(a) The Acquiring Company is a corporation duly formed, validly existing
and in good standing in the State of Maryland; (b) the Acquiring Fund has the
power to carry on its business as presently conducted in accordance with the
description thereof in the Acquiring Company's registration statement under the
1940 Act; (c) the Acquiring Fund Shares to be delivered to the Acquired Fund
pursuant to this Agreement are duly authorized and upon such delivery will be
validly issued, fully paid and nonassessable; (d) the Agreement has been duly
authorized, executed and delivered by the Acquiring Company, on behalf of the
Acquiring Fund, and constitutes a valid and legally binding obligation of the
Acquiring Company, on behalf of the Acquiring Fund, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and laws of general applicability relating to or
affecting creditors' rights; (e) the execution and delivery of the Agreement did
not, and the exchange of the Acquired Fund's Assets for Class A, Class B, Class
C and Class Q Shares of the Acquiring Fund pursuant to the Agreement will not,
violate the Acquiring Company's charter or By-laws; (f) to the knowledge of
such counsel, all regulatory consents, authorizations, approvals or filings
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required to be obtained or made by the Acquiring Fund under the Federal laws of
the United States or the laws of the State of Maryland for the exchange of the
Acquired Fund's Assets for Class A, Class B, Class C and Class Q Shares of the
Acquiring Fund pursuant to the Agreement have been obtained or made; and (g) the
Registration Statement has become effective under the 1933 Act, and to the best
of the knowledge of such counsel, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the 1933 Act.
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 section 1.1.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the Acquired Fund's
performance of all the obligations and compliance with all the provisions to be
performed or complied with by it hereunder on or before the Closing Date and, in
addition thereto, the following further conditions:
7.1. All representations and warranties of the Acquired Trust, with respect
to 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 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; and there
shall be (i) no pending or threatened litigation brought by any person against
the Acquiring Fund, the Acquired Fund or their advisers, directors, trustees or
officers arising out of this Agreement (except, with respect to the Acquiring
Fund or its adviser, trustees or officers, litigation brought by the Acquired
Fund, its adviser or any of their affiliates) and (ii) no facts known to the
Acquiring Fund which the Acquiring Fund reasonably believes might result in such
litigation.
7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing Date,
certified by the Treasurer of the Acquired Fund;
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquired Trust with respect to the Acquired Fund made in this Agreement are
true and correct on 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 Acquiring Fund shall reasonably request;
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Paul, Hastings, Janofsky & Walker LLP, which may in whole or in part be
supported by an opinion of another firm reasonably acceptable to the Acquiring
Fund, in a form reasonably satisfactory to the Acquiring Fund, and dated as of
the Closing Date, to the effect that:
(a) The Acquired Trust is a business trust duly formed, validly existing
and in good standing in the State of Delaware; (b) the Acquired Fund has the
power to carry on its business as presently conducted in accordance with the
description thereof in the Acquiring Trust's registration statement under the
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<PAGE>
1940 Act; (c) the Agreement has been duly authorized, executed and delivered by
the Acquired Trust, on behalf of the Acquired Fund, and constitutes a valid and
legally binding obligation of the Trust, on behalf of the Acquired Fund,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and laws of general
applicability relating to or affecting creditors' rights; (d) the execution and
delivery of the Agreement did not, and the exchange of the Acquired Fund's
Assets for Class A, Class B, Class C and Class Q Shares of the Acquiring Fund
pursuant to the Agreement will not, violate the Trust's Declaration of Trust, as
amended, or By-laws; and (e) to the knowledge of such counsel, all regulatory
consents, authorizations, approvals or filings required to be obtained or made
by the Acquired Fund under the Federal laws of the United States or the laws of
the State of Delaware for the exchange of the Acquired Fund's Assets for Class
A, Class B, Class C and Class Q Shares of the Acquiring Fund pursuant to the
Agreement have been obtained or made.
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 met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, either
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1. This 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 Acquired Trust's
Declaration of Trust, as amended, and By-Laws, applicable Delaware 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 Acquiring Fund nor the Acquired Fund may waive the
conditions set forth in this section 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to either party's knowledge threatened before any court or
governmental agency in which it is sought to restrain or prohibit, or obtain
material damages or other relief in connection with, this Agreement or the
transactions contemplated herein;
8.3. All consents of other persons and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund 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;
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
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8.5. The parties shall have received an opinion of Dechert Price & Rhoads
addressed to the Acquiring Company and the Acquired Trust, satisfactory to such
parties, substantially to the effect that, based upon certain facts, assumptions
and representations, the transaction contemplated by this Agreement constitutes
a tax-free reorganization for Federal income tax purposes. The delivery of such
opinion is conditioned upon receipt by Dechert Price & Rhoads of representations
it shall request of the Acquiring Company and the Acquired Trust.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Acquired Fund may waive the condition set forth in this section 8.5.
9. INDEMNIFICATION
9.1. The Acquiring Fund, out of the assets of the Acquiring Fund, agrees to
indemnify and hold harmless the Acquired Fund and each of the Acquired Fund's
trustees from and against any and all losses, claims, damages, liabilities or
expenses (including, without limitation, the payment of reasonable legal fees
and reasonable costs of investigation) to which the Acquired Fund or any of its
trustees may become subject, insofar as any such loss, claim, damage, liability,
or expense (or actions with respect thereto) arises out of or is based on any
breach by the Acquiring Fund of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
9.2. The Acquired Fund, out of the assets of the Acquired Fund (which after
the Closing Date shall be deemed to include assets of the Acquiring Fund
attributable to the Acquiring Fund Shares issued pursuant to this Agreement)
agrees to indemnify and hold harmless the Acquiring Fund and each of the
Acquiring Fund's directors from and against any and all losses, claims, damages,
liabilities or expenses (including, without limitation, the payment of
reasonable legal fees and reasonable costs of investigation) to which the
Acquiring Fund or any of its directors may become subject, insofar as any such
loss, claim, damage, liability, or expense (or actions with respect thereto)
arises out of or is based on any breach by the Acquired Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
9.3. A party seeking indemnification hereunder is hereinafter called the
"indemnified party" and the party from whom the indemnified party is seeking
indemnification hereunder is hereinafter called the "indemnifying party." Each
indemnified party shall notify the indemnifying party in writing within ten (10)
days of the receipt by such indemnified party of any notice of legal process or
any suit brought against or claim made against such indemnified party as to any
matters covered by this section, but the failure to notify the indemnifying
party shall not relieve the indemnifying party from any liability which it may
have to any indemnified party except to the extent that it is prejudiced by the
failure or delay in giving such notice. The indemnifying party shall be entitled
to participate at its own expense in the defense of any claim, action, suit, or
proceeding covered by this section, or, if it so elects, to assume at its own
expense the defense thereof with counsel reasonably satisfactory to the
indemnified parties; provided, however, if the defendants in any such action
include both the indemnifying party and any indemnified party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it which are different from or additional to those
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<PAGE>
available to the indemnifying party, the indemnified party shall have the right
to select separate counsel to assume such legal defense and to otherwise
participate in the defense of such action on behalf of such indemnified party.
Upon receipt of notice from the indemnifying party to the indemnified
parties of the election by the indemnifying party to assume the defense of such
action, the indemnifying party shall not be liable to such indemnified parties
under this section for any legal or other expenses subsequently incurred by such
indemnified parties in connection with the defense thereof unless (i) the
indemnified parties shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the provision of the immediately
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel), (ii)
the indemnifying party does not employ counsel reasonably satisfactory to the
indemnified parties to represent the indemnified parties within a reasonable
time after notice of commencement of the action, or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified parties at its
expenses.
10. FEES AND EXPENSES
10.1. The Acquiring Company, on behalf of the Acquiring Fund, and the
Acquired Trust, on behalf of the Acquired Fund, represents and warrants to the
other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
10.2. Pilgrim Investments, Inc. will bear the expenses of the
Reorganization; provided, however, that the Acquiring Fund shall be responsible
for the payment of the Commission's registration fees relating to the
Reorganization.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The Acquiring Fund and the Acquired Fund 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.
11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall NOT
survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing and the obligations of each of the
Acquired Fund and Acquired Fund in Sections 9.1, 9.2 and 9.3 shall survive the
Closing.
A-16
<PAGE>
12. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned by either party (i) by mutual agreement of the parties, (ii) by
either party if the Closing shall not have occurred on or before August 31,
1999, unless such date is extended by mutual agreement of the parties, (iii)
upon termination of the Asset Purchase Agreement dated January 28, 1999 among
Nicholas-Applegate Capital Management, Nicholas-Applegate Securities, Pilgrim
America Capital Corporation, Pilgrim Investments, Inc. and Pilgrim Securities,
Inc., or (iv) by either party if the other party shall have materially breached
its obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of either party or their respective directors/trustees or
officers, except for any such material breach or intentional misrepresentation,
as to each of which all remedies at law or in equity of the party adversely
affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
Acquired Trust and the Acquiring Company; provided, however, that following the
meeting of the Acquired Fund Shareholders called by the Acquired Fund pursuant
to section 5.3 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Class A, Class B,
Class C and Class Q Acquiring Fund shares to be issued to the Acquired Fund
shareholders under this Agreement to the detriment of such shareholders without
their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, 600 West Broadway, San Diego, California 92101, with a copy to
Ropes & Gray, One International Place, Boston, Massachusetts 02110, Attention:
Raj Marphatia, or to the Acquiring Fund, 40 North Central Avenue, Phoenix,
Arizona 85004, with a copy to Dechert Price & Rhoads, 1775 Eye Street, N.W.,
Washington, D.C. 20006, Attention: Jeffrey S. Puretz, or to any other address
that the Acquired Fund or the Acquiring Fund shall have last designated by
notice to the other party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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<PAGE>
15.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
15.3. 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 the shareholders of the
Acquiring Fund and the Acquired Fund and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
15.4. It is expressly agreed that the obligations of the Acquired Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or employees of the Acquired Trust or the Acquired Fund
personally, but bind only the respective property of the Acquired Fund, as
provided in the Acquired Trust's Declaration of Trust. Moreover, no series of
the Acquiring Company or the Acquired Trust other than the Acquiring Fund and
the Acquired Fund shall be responsible for the obligations of the Acquiring
Company or the Acquired Trust hereunder, and all persons shall look only to the
respective assets of each of the Acquiring Fund and the Acquired Fund to satisfy
the obligations of the Acquiring Company or the Acquired Trust hereunder. The
execution and the delivery of this Agreement have been authorized by the
Acquired Trust's Board of Trustees, on behalf of the Acquired Fund, and this
Agreement has been signed by authorized officers of the Acquired Fund acting as
such, and neither such authorization by such Trustees, nor such execution and
delivery by such officers, shall 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 respective property of the Acquired Fund, as provided in the
Acquired Trust's Declaration of Trust.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, without regard to its
principles of conflicts of laws.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President.
PILGRIM INVESTMENT FUNDS, INC.,
on behalf of its HIGH YIELD FUND
By:
----------------------------------
Title:
-------------------------------
NICHOLAS-APPLEGATE MUTUAL FUNDS,
on behalf of its HIGH YIELD BOND FUND
By:
----------------------------------
Title:
-------------------------------
A-19
<PAGE>
APPENDIX B
ADDITIONAL INFORMATION REGARDING PILGRIM HIGH YIELD FUND
SHAREHOLDER GUIDE
PILGRIM PURCHASE OPTIONS(TM)
This Proxy Statement/Prospectus relates to four separate classes of Pilgrim High
Yield Fund: Class A, Class B, Class C and Class Q, each of which represents an
identical interest in the Fund's investment portfolio but are offered with
different sales charges and distribution fee (Rule 12b-1) arrangements. As
described below and elsewhere in this Proxy Statement/Prospectus, the contingent
deferred sales load structure and conversion characteristics of the Pilgrim High
Yield Fund shares issued to you in the Reorganization will be the same as those
that applied to the Nicholas-Applegate High Yield Bond Fund shares held by you
immediately prior to the Reorganization, and the period that you held the
Nicholas-Applegate High Yield Bond Fund shares will be included in the holding
period of the Pilgrim High Yield Fund shares for purposes of calculating
contingent deferred sales charges and determining conversion rights. Purchases
of shares of Pilgrim High Yield Fund after the Reorganization will be subject to
the sales load structure and conversion rights discussed below.
The Pilgrim High Yield Fund also offers Class M shares, which have different
sales charge and distribution fee arrangements than the Classes discussed in
this Proxy Statement/Prospectus. The sales charges and fees for Class A, Class
B, Class C and Class Q shares are shown and contrasted in the chart below.
CLASS A CLASS B CLASS C CLASS Q
------- ------- ------- -------
Maximum Initial Sales
Charge on Purchases 4.75%(1) None None None
CDSC None(2) 5.00%(3) 1.00%(4) None
Annual Distribution Fees(5) 0.25% 1.00% 1.00% 0.25%
Maximum Purchase Unlimited $250,000 $2,500,000 Unlimited
Automatic Conversion to Class A N/A 8 Years(6) N/A N/A
- ----------
(1) Imposed upon purchase. Reduced for purchases of $50,000 or more.
(2) For investments of $1 million or more, a CDSC of no more than 1% is
assessed on redemptions made within one or two years from purchase,
depending on the amount of purchase. See `Class A Shares: Initial Sales
Charge Alternative.'
(3) Imposed upon redemption within 6 years from purchase. Fee has scheduled
reductions after the first year. See `Class B Shares: Deferred Sales Charge
Alternative.'
(4) Imposed upon redemption within 1 year from purchase.
(5) Annual asset-based distribution charge.
(6) Class B shares of the Pilgrim High Yield Fund issued to shareholders of the
Nicholas-Applegate High Yield Bond Fund in the Reorganization will convert
to Class A shares in the seventh year from the date of purchase of the
original Class B shares of Nicholas-Applegate High Yield Bond Fund.
B-1
<PAGE>
The relative impact of the initial sales charges and ongoing annual expenses
will depend on the length of time a share is held. Orders for Class B shares in
excess of $250,000 will be accepted as orders for Class A shares or declined.
Orders for Class C shares in excess of $2,500,000 will be accepted as orders for
Class A shares or declined.
CLASS C SHARES. Class C shares are offered at their net asset value per share
without an initial sales charge. The Distributor pays a commission of [1%] to
financial institutions that initiate purchases of Class C shares.
CLASS Q SHARES. Class Q shares are offered at net asset value without a sales
charge to qualified retirement plans, financial and other institutions, and
through fee-based programs sponsored and maintained by a registered
broker-dealer and approved by the Distributor pursuant to which each investor
pays an asset based fee to a financial intermediary for investment advisory
and/or administrative services. The minimum initial investment is $250,000, and
the minimum subsequent investment is $10,000. The Distributor may waive these
minimums from time to time.
CLASS A SHARES: INITIAL SALES CHARGE ALTERNATIVE. Class A shares of the Fund are
sold at the NAV per share in effect plus a sales charge as described in the
following table. For waivers or reductions of the Class A shares sales charges,
see `Special Purchases without a Sales Charge' and `Reduced Sales Charges.'
DEALERS'
REALLOWANCE
AS A % OF OFFERING AS A % AS A % OF
PRICE PER SHARE OF NAV OFFERING PRICE
--------------- ------ --------------
Less than $50,000 4.75% 4.99% 4.25%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.50% 3.63% 3.00%
$250,000 but less than $500,00 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
There is no initial sales charge on purchases of $1,000,000 or more. However,
the Distributor will pay Authorized Dealers of record commissions at the rates
shown in the table below for investments subject to a CDSC. If shares are
redeemed within one or two years of purchase, depending on the amount of the
purchase, a CDSC will be imposed on certain redemptions as follows:
PERIOD
DEALER DURING WHICH
CDSC REALLOWANCE CDSC APPLIES
---- ----------- ------------
$1,000,000 but less than $2,500,000 1.00% 1.00% 2 Years
$2,500,000 but less than $5,000,000 0.50% 0.50% 1 Year
$5,000,000 and over 0.25% 0.25% 1 Year
B-2
<PAGE>
However, Class A shares of Pilgrim High Yield Fund issued in connection with the
Reorganization with respect to Class A shares of Nicholas-Applegate High Yield
Bond Fund that were subject to a CDSC at the time of the Reorganization, will be
subject to a CDSC of 1% from the date of purchase of the original shares of
Nicholas-Applegate High Yield Bond Fund.
CLASS B SHARES: DEFERRED SALES CHARGE ALTERNATIVE. Class B shares may be
purchased at their NAV per share without a sales charge at the time of purchase.
Class B shares that are redeemed within six years of purchase, however, will be
subject to a CDSC as described in the table that follows. Class B shares of the
Fund are subject to a distribution fee at an annual rate of 1.00% of the average
daily net assets of the Class, which is higher than the distribution fees of
Class A shares. The higher distribution fees mean a higher expense ratio, so
Class B shares pay correspondingly lower dividends and may have a lower NAV than
Class A shares. In connection with sales of Class B shares, the Distributor
compensates Authorized Dealers at a rate of 4% of purchase payments subject to a
CDSC. Orders for Class B shares in excess of $250,000 will be accepted as orders
for Class A shares or declined. The amount of the CDSC is determined as a
percentage of the lesser of the NAV of the Class B shares at the time of
purchase or redemption. No charge will be imposed for any net increase in the
value of shares purchased during the preceding six years in excess of the
purchase price of such shares or for shares acquired either by reinvestment of
net investment income dividends or capital gain distributions. The percentage
used to calculate the CDSC will depend on the number of years since you invested
the dollar amount being redeemed according to the following table:
YEAR OF REDEMPTION AFTER PURCHASE CDSC
--------------------------------- ----
First ............................................. 5%
Second............................................. 4%
Third.............................................. 3%
Fourth............................................. 3%
Fifth.............................................. 2%
Sixth.............................................. 1%
Seventh and following.............................. 0%
To determine the CDSC payable on redemptions of Class B shares, the Fund will
first redeem shares in accounts that are not subject to a CDSC; second, shares
acquired through reinvestment of net investment income dividends and capital
gain distributions; third, shares purchased more than 6 years prior to
redemption; and fourth, shares subject to a CDSC in the order in which such
shares were purchased. Using this method, your sales charge, if any, will be at
the lowest possible rate.
Class B shares will automatically convert into Class A shares approximately
eight years after purchase, except that Class B shares of Pilgrim High Yield
Fund issued in connection with the Reorganization with respect to Class B shares
of Nicholas-Applegate High Yield Bond Fund will convert to Class A shares seven
years after the purchase of the original shares of Nicholas-Applegate High Yield
Bond Fund. For additional information on the CDSC and the conversion of Class B
shares, see the Fund's Statement of Additional Information.
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<PAGE>
REDUCED SALES CHARGES. An investor may immediately qualify for a reduced sales
charge on a purchase of Class A shares of the Fund or other open-end funds in
the Pilgrim Funds which offer Class A shares, or shares with front-end sales
charges (`Participating Funds') by completing the Letter of Intent section of an
Application to purchase Fund shares. Executing the Letter of Intent expresses an
intention to invest during the next 13 months a specified amount, which, if made
at one time, would qualify for a reduced sales charge. An amount equal to the
Letter amount multiplied by the maximum sales charge imposed on purchases of the
applicable Fund and class will be restricted within your account to cover
additional sales charges that may be due if your actual total investment fails
to qualify for the reduced sales charges. See the Statement of Additional
Information for the Fund for details on the Letter of Intent option or contact
the Shareholder Servicing Agent at (800) 992-0180 for more information.
A sales charge may also be reduced by taking into account the current value of
your existing holdings in the Fund or any other open-end funds in the Pilgrim
family of funds (excluding Pilgrim General Money Market Shares) (`Rights of
Accumulation'). The reduced sales charges apply to quantity purchases made at
one time or on a cumulative basis over any period of time by: (i) an investor;
(ii) the investor's spouse and children under the age of majority; (iii) the
investor's custodian account(s) for the benefit of a child under the Uniform
Gifts to Minors Act; (iv) a trustee or other fiduciary of a single trust estate
or a single fiduciary account (including a pension, profit-sharing and other
employee benefit plans qualified under Section 401 of the Internal Revenue
Code); and (v) by trust companies, registered investment advisers, banks and
bank trust departments for accounts over which they exercise exclusive
discretionary investment authority and which are held in a fiduciary, agency,
advisory, custodial or similar capacity. See the Statement of Additional
Information for the Fund for details or contact the Shareholder Servicing Agent
at (800) 992-0180 for more information.
For the purposes of Rights of Accumulation and the Letter of Intent Privilege,
shares held by investors in the Pilgrim Funds which impose a CDSC may be
combined with Class A or Class M shares for a reduced sales charge but will not
affect any CDSC which may be imposed upon the redemption of shares of the Fund
which imposes a CDSC.
WAIVERS OF CDSC. The CDSC on Class A, Class B or Class C shares will be waived
in the following cases. In determining whether a CDSC is applicable, it will be
assumed that shares held in the shareholder's account that are not subject to
such charge are redeemed first.
1) The CDSC on Class A, Class B or Class C shares will be waived in the
case of redemption following the death or permanent disability of a shareholder
if made within one year of death or initial determination of permanent
disability. The waiver is available for total or partial redemptions of shares
of the Fund owned by an individual or an individual in joint tenancy (with
rights of survivorship), but only for those shares held at the time of death or
initial determination of permanent disability.
2) The CDSC also may be waived for Class B or Class C Shares redeemed
pursuant to a Systematic Withdrawal Plan, up to a maximum of 12% per year of a
shareholder's account value based on the value of the account at the time the
plan is established and annually thereafter, provided all dividends and
distributions are reinvested and the total redemptions do not exceed 12%
annually.
B-4
<PAGE>
3) The CDSC also will be waived in the case of a total or partial
redemption of shares in the Fund in connection with any mandatory distribution
from a tax-deferred retirement plan or an IRA. The shareholder must have
attained the age of 70 1/2 to qualify for the CDSC waiver relating to mandatory
distributions. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation of service.
The shareholder must notify the Transfer Agent either directly or through the
Distributor, at the time of redemption, that the shareholder is entitled to a
waiver of the CDSC. The CDSC Waiver Form included in the Account Application
must be completed and provided to the Transfer Agent at the time of the
redemption request. The waiver will be granted subject to confirmation of the
grounds for the waiver. The foregoing waivers may be changed at any time.
REINSTATEMENT PRIVILEGE. Class B and Class C shareholders who have redeemed
their shares in any open-end Pilgrim Fund within the previous 90 days may
repurchase Class B or Class C shares, respectively, at NAV (at the time of
reinstatement) in an amount up to the redemption proceeds. Reinstated Class B or
Class C shares will retain their original cost and purchase date for purposes of
the CDSC. The amount of any CDSC also will be reinstated. To exercise this
privilege, a written order for the purchase of shares must be received by the
Transfer Agent or be postmarked within 90 days after the date of redemption.
This privilege can be used only once per calendar year. If a loss is incurred on
the redemption and the reinstatement privilege is used, some or all of the loss
may not be allowed as a tax deduction.
SPECIAL PURCHASE WITHOUT A SALES CHARGE. Class A shares may be purchased at NAV
without a sales charge by:
1) Class A shareholders who have redeemed their shares in any open-end
Pilgrim Fund within the previous 90 days. These shareholders may repurchase
shares at NAV in an amount equal to their net redemption proceeds. Authorized
Dealers who handle these purchases may charge fees for this service.
2) Any person who can document that Fund shares were purchased with
proceeds from the redemption (within the previous 90 days) of shares from any
unaffiliated mutual fund other than Nicholas-Applegate High Yield Bond Fund on
which a sales charge was paid or which were subject at any time to a CDSC, and
which unaffiliated fund was a high yield bond fund.
3) Any charitable organization or governmental entity that has determined
that the Fund is a legally permissible investment and which is prohibited by
applicable law from paying a sales charge or commission in connection with the
purchase of shares of any mutual fund.
4) Officers, directors and full-time employees, and their families of (i)
Pilgrim America Capital Corporation (Pilgrim) and its affiliates and (ii) of any
Portfolio Manager to any open-end Pilgrim Fund.
B-5
<PAGE>
5) Certain fee based broker-dealers or registered representatives thereof
or registered investment advisers under certain circumstances making investments
on behalf of their clients.
6) Shareholders who have authorized the automatic transfer of dividends
from the same class of another Pilgrim Fund distributed by the Distributor or
from Pilgrim Prime Rate Trust.
7) Registered investment advisors, trust companies and bank trust
departments investing in Class A shares on their own behalf or on behalf of
their clients, provided that the aggregate amount invested in any Fund alone or
in any combination of shares of any Fund plus Class A shares of certain other
Participating Funds as described herein under `Pilgrim Purchase Options(TM)
- --Reduced Sales Charges', during the 13 month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may pay
Authorized Dealers through which purchases are made an amount up to 0.50% of the
amount invested, over a 12 month period following the transaction.
8) Broker-dealers, who have signed selling group agreements with the
Distributor, and registered representatives and employees of such
broker-dealers, for their own accounts or for members of their families (defined
as current spouse, children, parents, grandparents, uncles, aunts, siblings,
nephews, nieces, step relations, relations-at-law and cousins).
9) Broker-dealers using third party administrators for qualified retirement
plans who have entered into an agreement with the Pilgrim Funds or an affiliate,
subject to certain operational and minimum size requirements specified from
time-to-time by the Pilgrim Funds.
10) Accounts as to which a banker or broker-dealer charges an account
management fee (`wrap accounts').
11) Any registered investment company for which Pilgrim Investments, Inc.
serves as investment manager.
The Fund may terminate or amend the terms of offering shares at NAV to these
investors at any time. For additional information, contact the Shareholder
Servicing Agent at (800) 992-0180, or see the Pilgrim Statement of Additional
Information.
RULE 12b-1 PLAN. The Fund has a distribution plan pursuant to Rule 12b-1 under
the 1940 Act applicable to each class of shares of the Fund (Rule 12b-1 Plan).
Under the Rule 12b-1 Plan, the Distributor may receive from the Fund an annual
fee in connection with the offering, sale and shareholder servicing of the
Fund's Class A, Class B, Class C and Class Q shares.
B-6
<PAGE>
DISTRIBUTION AND SERVICING FEES. As compensation for services rendered and
expenses borne by the Distributor in connection with the distribution of shares
of the Fund and in connection with services rendered to shareholders of the
Fund, the Fund pays the Distributor servicing fees and distribution fees up to
the annual rates set forth below (calculated as a percentage of the Fund's
average daily net assets attributable to that class):
SERVICING FEE DISTRIBUTION FEE
------------- ----------------
Class A 0.25% n/a
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class Q 0.25% n/a
Fees paid under the Rule 12b-1 Plan may be used to cover the expenses of the
Distributor from the sale of Class A, Class B, Class C or Class Q shares of the
Fund, including payments to Authorized Dealers, and for shareholder servicing.
Because these fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
Under the Rule 12b-1 Plan, ongoing payments will be made on a quarterly basis to
Authorized Dealers for distribution and shareholder servicing as set forth
below.
SERVICING FEE DISTRIBUTION FEE
------------- ----------------
Class A 0.25% n/a
Class B 0.25% n/a
Class C ____% ____%
Class Q ____% ____%
Payments are calculated as a percentage of the Fund's average daily NAV
attributed to each class of shares that are registered in the name of that
Authorized Dealer as nominee or held in a shareholder account that designates
that Authorized Dealer as the dealer of record. Rights to these ongoing payments
begin to accrue in the 13th month following a purchase of Class A or B shares,
and they cease upon redemption or exchange (or purchase) into Pilgrim General
Money Market Shares. The payments are also subject to the continuation of the
relevant distribution plan, the terms of the service agreements between dealers
and the Distributor, and any applicable limits imposed by the National
Association of Securities Dealers, Inc.
OTHER EXPENSES. In addition to the management fee and other fees described
previously, the Fund pays other expenses, such as legal, audit, transfer agency
and custodian out-of-pocket fees, proxy solicitation costs, and the compensation
of Directors who are not affiliated with Pilgrim Investments. Most Fund expenses
are allocated proportionately among all of the outstanding shares of that Fund.
However, the Rule 12b-1 Plan fees for each class of shares are charged
proportionately only to the outstanding shares of that class.
PURCHASING SHARES
The Fund reserves the right to liquidate sufficient shares to recover annual
Transfer Agent fees should the investor fail to maintain his/her account value
at a minimum of $1,000.00 ($250.00 for IRA's). The minimum initial investment in
the Fund is $1,000 ($250 for IRAs), and the minimum for additional investment in
the Fund is $100.
B-7
<PAGE>
The Fund and the Distributor reserve the right to reject any purchase order.
Please note cash, travelers checks, third party checks, money orders and checks
drawn on non-US banks (even if payment may be effected through a US bank) will
not be accepted. Pilgrim Investments reserves the right to waive minimum
investment amounts.
PRICE OF SHARES. Purchase, sale and exchange orders are effected at NAV for the
respective class of shares of the Fund, determined after the order is received
by the Transfer Agent or Distributor, plus any applicable sales charge (Public
Offering Price).
Purchases of each class of the Fund's shares are effected at that Fund's Public
Offering Price determined after a purchase order has been received in proper
form. In the case of an investment by wire, however, the order will be deemed to
be in proper form after the telephone notification and the federal funds wire
have been received. A shareholder who purchases by wire must submit an
application form in a timely fashion. If an order or payment by wire is received
after the close of regular trading on the New York Stock Exchange, (normally
4:00 p.m. Eastern Time), the shares will not be credited until the next business
day.
You will receive a confirmation of each new transaction in your account, which
also will show you the number of Fund shares you own including the number of
shares being held in safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as evidence of your
ownership. Certificates representing shares of the Fund will not be issued
unless you request them in writing.
DETERMINATION OF NET ASSET VALUE. The NAV of each class of the Fund's shares
will be determined daily as of the close of regular trading on the New York
Stock Exchange (usually at 4:00 p.m. New York City time) on each day that it is
open for business. Each class' NAV represents that class' pro rata share of that
Fund's net assets as adjusted for any class specific expenses (such as fees
under a Rule 12b-1 plan), and divided by that class' outstanding shares. In
general, the value of the Fund's assets is based on actual or estimated market
value, with special provisions for assets not having readily available market
quotations and short-term debt securities. The NAV per share of each class of
the Fund will fluctuate in response to changes in market conditions and other
factors. Portfolio securities for which market quotations are readily available
are stated at market value. Short-term debt securities having a maturity of 60
days or less are valued at amortized cost, unless the amortized cost does not
approximate market value. Securities prices may be obtained from automated
pricing services. In other cases, securities are valued at their fair value as
determined in good faith by the Board of Directors, although the actual
calculations will be made by persons acting under the supervision of the Board.
For information on valuing foreign securities, see the Fund's Statement of
Additional Information.
PRE-AUTHORIZED INVESTMENT PLAN. You may establish a pre-authorized investment
plan to purchase shares with automatic bank account debiting. For further
information on pre-authorized investment plans, contact the Shareholder
Servicing Agent at (800) 992-0180.
B-8
<PAGE>
RETIREMENT PLANS. The Fund has available prototype qualified retirement plans
for both corporations and for self-employed individuals. Also available are
prototype IRA, Roth IRA and Simple IRA plans (for both individuals and
employers), Simplified Employee Pension Plans, Pension and Profit Sharing Plans
and Tax Sheltered Retirement Plans for employees of public educational
institutions and certain non-profit, tax-exempt organizations. Investors
Fiduciary Trust Company (`IFTC') acts as the custodian under these plans. For
further information, contact the Shareholder Servicing Agent at (800) 992-0180.
IFTC currently receives a $12 custodian fee annually for the maintenance of such
accounts.
TELEPHONE ORDERS. The Fund and its Transfer Agent will not be responsible for
the authenticity of phone instructions or losses, if any, resulting from
unauthorized shareholder transactions if they reasonably believe that such
instructions were genuine. The Fund and its Transfer Agent have established
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures include: (i) recording telephone instructions for
exchanges and expedited redemptions; (ii) requiring the caller to give certain
specific identifying information; and (iii) providing written confirmation to
shareholders of record not later than five days following any such telephone
transactions. If the Fund and its Transfer Agent do not employ these procedures,
they may be liable for any losses due to unauthorized or fraudulent telephone
instructions. Telephone redemptions may be executed on all accounts other than
retirement accounts.
EXCHANGE PRIVILEGES AND RESTRICTIONS
An exchange privilege is available. Exchange requests may be made in writing to
the Transfer Agent or by calling the Shareholder Servicing Agent at (800)
992-0180. There is no specific limit on exchange frequency; however, the Fund is
intended for long term investment and not as a trading vehicle. Pilgrim
Investments reserves the right to prohibit excessive exchanges (more than four
per year). Pilgrim Investments reserves the right, upon 60 days' prior notice,
to restrict the frequency of, otherwise modify, or impose charges of up to $5.00
upon exchanges. The total value of shares being exchanged must at least equal
the minimum investment requirement of the fund into which they are being
exchanged.
Shares of one class of the Fund may be exchanged for shares of that same class
of any other open-end Pilgrim Fund other than Pilgrim General Money Market
Shares (`Money Market'), at NAV without payment of any additional sales charge.
If you exchange and subsequently redeem your shares, any applicable CDSC will be
based on the full period of the share ownership. Shares of the Fund that are not
subject to a CDSC may be exchanged for shares of Money Market, and shares of
Money Market acquired in the exchange may subsequently be exchanged for shares
of an open-end Pilgrim Fund of the same class as the original shares acquired.
Shares of the Fund that are subject to a CDSC may be redeemed to purchase shares
of Money Market upon payment of the CDSC. Shareholders exercising the exchange
privilege with any other open-end Pilgrim Fund should carefully review the
prospectus of that Fund. Exchanges of shares are sales and may result in a gain
or loss for federal and state income tax purposes. You will automatically be
assigned the telephone exchange privilege unless you mark the box on the Account
Application that signifies you do not wish to have this privilege. The exchange
privilege is only available in states where shares of the Fund being acquired
may be legally sold.
B-9
<PAGE>
SYSTEMATIC EXCHANGE PRIVILEGE. With an initial account balance of at least
$5,000 and subject to the information and limitations outlined above, you may
elect to have a specified dollar amount of shares systematically exchanged,
monthly, quarterly, semi-annually or annually (on or about the 10th of the
applicable month), from your account to an identically registered account in the
same class of any other open-end Pilgrim Fund. The exchange privilege may be
modified at any time or terminated upon 60 days written notice to shareholders.
HOW TO REDEEM SHARES
Shares of the Fund will be redeemed at the NAV (less any applicable CDSC and/or
federal income tax withholding) next determined after receipt of a redemption
request in good form on any day the New York Stock Exchange is open for
business.
SYSTEMATIC WITHDRAWAL PLAN. You may elect to have monthly, quarterly,
semi-annual or annual payments in any fixed amount in excess of $100 made to
yourself, or to anyone else you properly designate, as long as the account has a
current value of at least $10,000. During the withdrawal period, you may
purchase additional shares for deposit to your account if the additional
purchases are equal to at least one year's scheduled withdrawals, or $1,200
whichever is greater. There are no separate charges to you under this Plan,
although a CDSC may apply if you purchased Class A, B or C shares.
The number of full and fractional shares equal in value to the amount of the
payment will be redeemed at NAV (less any applicable CDSC). Such redemptions are
normally processed on the fifth day prior to the end of the month, quarter or
year. Checks are then mailed or proceeds are forwarded to your bank account on
or about the first of the following month. Shareholders who elect to have a
systematic cash withdrawal must have all dividends and capital gains reinvested.
To establish a systematic cash withdrawal, please complete the Systematic
Withdrawal Plan section of the Account Application. To have funds deposited to
your bank account, follow the instructions on the Account Application.
You may change the amount, frequency and payee, or terminate this plan by giving
written notice to the Transfer Agent. As shares of the Fund are redeemed under
the Plan, you may realize a capital gain or loss for income tax purposes. A
Systematic Withdrawal Plan may be modified at any time by the Fund or terminated
upon written notice by you or the relevant Fund.
PAYMENTS. Payment to shareholders for shares redeemed or repurchased ordinarily
will be made within three days after receipt by the Transfer Agent of a written
request in good order. The Fund may delay the mailing of a redemption check
until the check used to purchase the shares being redeemed has cleared which may
take up to 15 days or more. To reduce such delay, all purchases should be made
by bank wire or federal funds. The Fund may suspend the right of redemption
under certain extraordinary circumstances in accordance with the Rules of the
Securities and Exchange Commission. Due to the relatively high cost of handling
B-10
<PAGE>
small investments, the Fund reserves the right upon 30 days written notice to
redeem, at NAV, the shares of any shareholder whose account (except for IRAs)
has a value of less than $1,000, other than as a result of a decline in the NAV
per share. The Fund intends to pay in cash for all shares redeemed, but under
abnormal conditions that make payment in cash unwise, the Fund may make payment
wholly or partly in securities at their then current market value equal to the
redemption price. In such case, the Fund could elect to make payment in
securities for redemptions in excess of $250,000 or 1% of its net assets during
any 90-day period for any one shareholder. An investor may incur brokerage costs
in converting such securities to cash.
MANAGEMENT OF THE FUND
INVESTMENT MANAGER. Pilgrim Investments has overall responsibility for the
management of the Fund. The Fund and Pilgrim Investments have entered into an
agreement that requires Pilgrim Investments to provide or oversee all investment
advisory and portfolio management services for the Fund. The agreement also
requires Pilgrim Investments to assist in managing and supervising all aspects
of the general day-to-day business activities and operations of the Fund,
including custodial, transfer agency, dividend disbursing, accounting, auditing,
compliance and related services. Pilgrim Investments provides the Fund with
office space, equipment and personnel necessary to administer the Fund. Each
agreement with Pilgrim Investments can be canceled by the Board of Directors of
the Fund upon 60 days written notice. Organized in December 1994, Pilgrim
Investments is registered as an investment adviser with the Securities and
Exchange Commission. Pilgrim Investments acquired certain assets of the previous
adviser to the Fund in a transaction that closed on April 7, 1995. Pilgrim
Investments bears its expenses of providing the services described above.
Investment Management fees are computed and accrued daily and paid monthly.
PARENT COMPANY AND DISTRIBUTOR. Pilgrim Investments and Pilgrim Securities, Inc.
(Distributor), the Fund's principal underwriter, are indirect, wholly owned
subsidiaries of Pilgrim America Capital Corporation (NYSE: PFX). Through its
subsidiaries, Pilgrim America Capital Corporation engages in the financial
services business, focusing on providing investment advisory, administrative and
distribution services to open-end and closed-end investment companies and
private accounts.
DISTRIBUTOR. In addition to providing for the expenses discussed above, the Rule
12b-1 Plan also recognizes that Pilgrim Investments may use its investment
management fees or other resources to pay expenses associated with activities
primarily intended to result in the promotion and distribution of the Fund's
shares. The Distributor will, from time to time, pay to Authorized Dealers in
connection with the sale or distribution of shares of the Fund material
compensation, which includes, but is not limited to, cash, merchandise, trips
and financial assistance in connection with pre-approved conferences or
seminars, sales or training programs for invited sales personnel, payment for
travel expenses (including meals and lodging) incurred by sales personnel to
various locations for such seminars or training programs, seminars for the
public, advertising and sales campaigns regarding the Fund or other open-end
Pilgrim Funds and/or events sponsored by Authorized Dealers. In addition, the
Distributor may, at its own expense, pay concessions in addition to those
B-11
<PAGE>
described above to dealers that satisfy certain criteria established from time
to time by the Distributor. These conditions relate to increasing sales of
shares of the Fund over specified periods and to certain other factors.
Salespersons and any other person entitled to receive any compensation for
selling or servicing Fund shares may receive different compensation with respect
to one particular class of shares over another in the Fund.
SHAREHOLDER SERVICING AGENT. Pilgrim Group, Inc. serves as Shareholder Servicing
Agent for the Fund. The Shareholder Servicing Agent is responsible for
responding to written and telephonic inquiries from shareholders. The Fund pays
the Shareholder Servicing Agent a monthly fee on a per-contact basis, based upon
incoming and outgoing telephonic and written correspondence.
PORTFOLIO TRANSACTIONS. Pilgrim Investments will place orders to execute
securities transactions that are designed to implement the Fund's investment
objectives and policies. Pilgrim Investments will use its reasonable efforts to
place all purchase and sale transactions with brokers, dealers and banks
(`brokers') that provide `best execution' of these orders. In placing purchase
and sale transactions, Pilgrim Investments may consider brokerage and research
services provided by a broker to Pilgrim Investments or its affiliates, and the
Fund may pay a commission for effecting a securities transaction that is in
excess of the amount another broker would have charged if Pilgrim Investments
determines in good faith that the amount of commission is reasonable in relation
to the value of the brokerage and research services provided by the broker. In
addition, Pilgrim Investments may place securities transactions with brokers
that provide certain services to the Fund. Pilgrim Investments also may consider
a broker's sale of Fund shares if Pilgrim Investments is satisfied that the Fund
would receive best execution of the transaction from that broker.
DIVIDENDS, DISTRIBUTIONS & TAXES
DIVIDENDS AND DISTRIBUTIONS. Pilgrim High Yield Fund has a policy of paying
monthly dividends from its net investment income, and paying capital gains, if
any, annually. Dividends and distributions will be determined on a class basis.
Any dividends and distributions paid by the Fund will be automatically
reinvested in additional shares of the respective class of that Fund, unless you
elect to receive distributions in cash. When a dividend or distribution is paid,
the NAV per share is reduced by the amount of the payment. You may, upon written
request or by completing the appropriate section of the Account Application in
this Proxy Statement/Prospectus, elect to have all dividends and other
distributions paid on a Class A, B, C or Q account in the Fund invested into a
Pilgrim Fund which offers Class A, B, C or Q shares. Both accounts must be of
the same class.
FEDERAL TAXES. Dividends paid out of the Fund's investment company taxable
income (including dividends, interest and short-term capital gains) will be
taxable to a U.S. shareholder as ordinary income. If a portion of the Fund's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate dividends-received
deduction. Distributions of net capital gains (the excess of net long-term
B-12
<PAGE>
capital gains over net short-term capital losses), if any, designated as capital
gain dividends will be taxable as long-term capital gains, regardless of how
long the shareholder has held the Fund's shares.
All dividends and capital gains are taxable whether they are reinvested or
received in cash, unless you are exempt from taxation or entitled to tax
deferral. Dividends declared in October, November, or December with a record
date in such month and paid during the following January will be treated as
having been paid by the Fund and received by shareholders on December 31 of the
calendar year in which declared, rather than the calendar year in which the
dividends are actually received.
Upon the sale or other disposition of shares of the Fund, a shareholder may
realize a gain or loss which will be a capital gain or loss if the shares are
held as a capital asset and, if so, may be eligible for reduced federal tax
rates, depending on the shareholder's holding period for the shares.
This is a brief summary of some of the tax laws that affect your investment in
the Fund. Please see the Fund's Statement of Additional Information and your tax
adviser for further information.
YEAR 2000 COMPLIANCE
Like other financial organizations, the Fund could be adversely affected if the
computer systems used by the Fund's service providers do not properly process
and calculate date-related information after January 1, 2000. This is commonly
known as the "Year 2000 Problem." The Year 2000 Problem could have a negative
impact on handling securities trades, payment of interest and dividends,
pricing, and account services. Pilgrim Investments is taking steps that it
believes are reasonably designed to address the Year 2000 Problem with respect
to computer systems that it uses and to obtain reasonable assurances that
comparable steps are being taken by the Fund's other major service providers. It
is not anticipated that the Funds will directly bear any material costs
associated with Pilgrim Investments and the Fund's other service providers
efforts to become Year 2000 compliant. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact to the
Fund nor can there be any assurance that the Year 2000 Problem will not have an
adverse effect on the companies whose securities are held by the Fund or on
global markets or economies, generally.
B-13
<PAGE>
FINANCIAL HIGHLIGHTS FOR PILGRIM HIGH YIELD FUND
For a Share Outstanding Throughout Each Period
The following table presents condensed financial information about the Pilgrim
High Yield Fund. The table presents historical information based upon a share
outstanding through the Fund's fiscal year. This information has been derived
from the financial statements that are in the Fund's Annual Report dated as of
June 30, 1998 and the Semi-annual report dated as of December 31, 1998 which is
unaudited. Further information about the Fund's performance is contained in the
Fund's Annual and Semi-annual Reports, which may be obtained without charge. For
the fiscal years ended June 30, 1998, 1997, and 1996 and the eight- month period
ended June 30, 1995, the information in the table below has been audited by KPMG
LLP, independent auditors. For all periods ending prior to November 1, 1994, the
financial information was audited by another independent auditor.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------
SIX MONTHS EIGHT MONTHS
ENDED YEAR ENDED JUNE 30, ENDED YEAR ENDED OCTOBER 31,
DECEMBER 31 --------------------------- JUNE 30, ----------------------
1998 (UNAUDITED) 1998 1997 1996 1995(a)(b) 1994 1993
--------------- ---- ---- ---- ---------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 6.94 $ 6.80 $ 6.36 $ 6.15 $ 5.95 $ 6.47 $ 5.77
Income (loss) from investment
operations:
Net investment income 0.29 0.61 0.61 0.59 0.35 0.54 0.53
Net realized and unrealized
gain (loss) on investments (0.74) 0.16 0.43 0.16 0.21 (0.51) 0.70
------- -------- ------- ------- ------- ------- -------
Total from investment operation (0.45) 0.77 1.04 0.75 0.56 0.03 1.23
------- -------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income 0.29 0.63 0.60 0.54 0.36 0.55 0.53
Distributions in excess of
net investment income 0.03 -- -- -- -- -- --
------- -------- ------- ------- ------- ------- -------
Total distributions 0.32 0.63 0.60 0.54 0.36 0.55 0.53
------- -------- ------- ------- ------- ------- -------
Net asset value, end of period $ 6.17 $ 6.94 $ 6.80 $ 6.36 $ 6.15 $ 5.95 $ 6.47
======= ======== ======= ======= ======= ======= =======
TOTAL RETURN(d) (6.48)% 11.71% 17.14% 12.72% 9.77% 0.47% 22.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $ 127,392 $102,424 $35,940 $18,691 $15,950 $16,046 $18,797
Ratios to average net assets:
Expenses(e)(f)(g)(h)(i) 1.00%(j) 1.00% 1.00% 1.00% 2.25%(j) 2.00% 2.02%
Net investment income(e)(f)(g)(h)(i) 9.28%(j) 9.05% 9.54% 9.46% 8.84%(j) 8.73% 8.36%
Portfolio turnover rate 70% 209% 394% 399% 166% 192% 116%
CLASS B
--------------------------------
SIX MONTHS JULY 17,
ENDED YEAR ENDED JUNE 30, 1995(c) TO
DECEMBER 31 ------------------- JUNE 30,
1998 (UNAUDITED) 1998 1997 1996
--------------- ---- ---- ----
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 6.92 $ 6.78 $ 6.36 $ 6.20
Income (loss) from investment
operations:
Net investment income 0.23 0.58 0.57 0.48
Net realized and unrealized
gain (loss) on investments (0.74) 0.14 0.41 0.14
-------- -------- ------- ------
Total from investment operation (0.51) 0.72 0.98 0.62
-------- -------- ------- ------
Less distributions from:
Net investment income 0.23 0.58 0.56 0.46
Distributions in excess of
net investment income 0.02 -- -- --
-------- -------- ------- ------
Total distributions 0.25 0.58 0.56 0.46
-------- -------- ------- ------
Net asset value, end of period $ 6.16 $ 6.92 $ 6.78 $ 6.36
======== ======== ======= ======
TOTAL RETURN(d) (6.76)% 10.90% 16.04% 10.37%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $233,916 $154,303 $40,225 $2,374
Ratios to average net assets:
Expenses(e)(f)(g)(h)(i) 1.75% 1.75% 1.75% 1.75%(j)
Net investment income(e)(f)(g)(h)(i) 8.53% 8.30% 8.64% 9.02%(j)
Portfolio turnover rate 70% 209% 394% 339%
</TABLE>
- ----------
Footnotes on next page
B-14
<PAGE>
(a) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired
certain assets of Pilgrim Management Corporation, the Fund's former
Investment Manager, in a transaction that closed on April 7, 1995.
(b) Effective November 1, 1994, High Yield Fund changed its year end to
June 30.
(c) Commencement of offering of shares.
(d) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the
deduction of sales charges. Total return information for less than one
year is not annualized.
(e) Prior to the waiver and reimbursement of expenses for the period ended
June 30, 1998, the ratios of expenses to average net assets were
1.17%, 1.92% and 1.67% and the ratios of net investment income to
average net assets were 8.88%, 8.13% and 8.38% for Class A, B and M
shares, respectively.
(f) Prior to the waiver and reimbursement of expenses for the year ended
June 30, 1997, the ratios of expenses to average net assets were
1.42%, 2.17% and 1.92% and the ratios of net investment income to
average net assets were 9.09%, 8.18% and 8.47% for Class A, B and M
shares, respectively.
(g) Prior to the waiver and reimbursement of expenses for the period ended
June 30, 1996, the ratios of expenses to average net assets were
2.19%, 2.94% (j) and 2.69% (j), and the ratios of net investment
income to average net assets were 8.27%, 8.05% (j) and 8.51% (j), for
Class A, B and M shares, respectively.
(h) Prior to the waiver of expenses, the ratio of expenses to average net
assets was 2.35% (j) in 1995 and 2.07% in 1994 for Class A shares.
Prior to the waiver of expenses, the ratio of net investment income to
average net assets was 8.74% (j) in 1995 and 8.66% in 1994 for Class A
shares.
(i) Prior to the waiver and reimbursement of expenses for the period ended
December 31, 1998, the ratios of expenses to average net assets were 1.12%,
1.87% and 1.62% and the ratios of net investment income to average net
assets were 9.16%, 8.41% and 8.66% for Class A, B and M shares,
respectively.
(j) Annualized.
B-15
<PAGE>
APPENDIX C
SUMMARY DESCRIPTION OF BOND RATINGS
The following are excerpts from S&P's description of its bond ratings: BB,
B, CCC, CC, C -- predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with terms of the obligation; BB
indicates the lowest degree of speculation and C the highest. D -- in payment
default. S&P applies indicators `+,' no character, and `+' to its rating
categories. The indicators show relative standing within the major rating
categories.
The following are excerpts from Moody's description of its bond ratings:
Ba-- judged to have speculative elements; their future cannot be considered
as well assured. B -- generally lack characteristics of a desirable
investment. Caa-- are of poor standing; such issues may be in default or
there may be present elements of danger with respect to principal or
interest. Ca --speculative in a high degree; often in default. C -- lowest
rate class of bonds; regarded as having extremely poor prospects. Moody's
also applies numerical indicators 1, 2 and 3 to rating categories. The
modifier 1 indicates that the security is in the higher end of its rating
category; 2 indicates a mid-range ranking; and 3 indicates a ranking
towards the lower end of the category.
C-1
<PAGE>
APPENDIX D
Subject to shareholder approval, the following Nicholas-Applegate Mutual Funds
will become part of the Pilgrim family of funds, and each is expected to
continue to offer Class A, Class B, Class C and Class Q shares:
International Core Growth Fund*
Worldwide Growth Fund*
International Small Cap Growth Fund*
Emerging Countries Fund*
Large Cap Growth Fund*
Mid Cap Growth Fund*
Small Cap Growth Fund*
Convertible Fund
Balanced Growth Fund
High Quality Bond Fund
- ----------
* Subject to shareholder approval, Nicholas-Applegate Capital Management will
serve as sub-adviser for the indicated Funds.
The following is a list of the current Pilgrim mutual funds and the classes of
shares that are currently offered by each fund or are expected to be offered at
or shortly after the Reorganization:
Classes Offered
---------------
Pilgrim MagnaCap Fund A, B, C and M
Pilgrim LargeCap Leaders Fund A, B, C and M
Pilgrim MidCap Value Fund A, B, C and M
Pilgrim Bank and Thrift Fund A and B
Pilgrim Asia-Pacific Equity Fund A, B and M
Pilgrim High Yield Fund A, B, C, M and Q
Pilgrim Government Securities Income Fund A, B, C and M
D-1
<PAGE>
APPENDIX E
As of March 1, 1999, the following persons owned beneficially or of record
5% or more of the outstanding shares of the specified class of
Nicholas-Applegate High Yield Bond Fund:
[TABLE TO BE PROVIDED]
As of March 1, 1999, the following persons owned beneficially or of record
5% or more of the outstanding shares of the specified class of Pilgrim High
Yield Fund:
[TABLE TO BE PROVIDED]
E-1
<PAGE>
NICHOLAS-APPLEGATE HIGH YIELD BOND FUND
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS ON MAY 21, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoint(s) E. Blake Moore, Jr. and Charles H. Field, Jr.
or any one or more of them, proxies, with full power of substitution, to vote
all shares of the Nicholas-Applegate High Yield Bond Fund (the "Fund") which the
undersigned is entitled to vote at the Special Meeting of Shareholders of the
Fund to be held at the offices of the Fund at 600 West Broadway, San Diego,
California 92101, on May 21, 1999 at 9:00 a.m., and at any adjournment thereof.
This proxy will be voted as instructed. If no specification is made, the proxy
will be voted "FOR" the proposals.
Please vote, date and sign this proxy and return it promptly in the enclosed
envelope.
Please indicate your vote by an "x" in the appropriate box below.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL:
1. To approve an Agreement and Plan of Reorganization providing for the
acquisition of all or substantially all of the assets of Nicholas-Applegate High
Yield Bond Fund by the Pilgrim High Yield Fund, in exchange for shares of common
stock of Pilgrim High Yield Fund and the assumption by Pilgrim High Yield Fund
of all of the liabilities of Nicholas-Applegate High Yield Bond Fund
For [ ] Against [ ] Abstain [ ]
This proxy must be signed exactly as your name(s) appears hereon. If as an
attorney, executor, guardian or in some representative capacity or as an officer
of a corporation, please add titles as such. Joint owners must each sign.
- ------------------------------- -------------------
Signature Date
- ------------------------------- -------------------
Signature (if held jointly) Date
<PAGE>
PART B
PILGRIM AMERICA INVESTMENT FUNDS, INC.
- --------------------------------------------------------------------------------
Statement of Additional Information
March __, 1999
- --------------------------------------------------------------------------------
Acquisition of the Assets of Nicholas- By and in Exchange for Shares of
Applegate High Yield Bond Fund (a Series Pilgrim High Yield Fund (a Series
of Nicholas-Applegate Mutual Funds) of Pilgrim Investment Funds, Inc.)
600 West Broadway 40 North Central Avenue
San Diego, California 92101 Phoenix, Arizona 85004
This Statement of Additional Information is available to the Shareholders of
Nicholas-Applegate High Yield Bond Fund, a series of Nicholas-Applegate Mutual
Funds, in connection with a proposed transaction whereby Pilgrim High Yield
Fund, a series of Pilgrim Investment Funds, Inc., will acquire all or
substantially all of the assets of Nicholas-Applegate High Yield Bond Fund, in
exchange for shares of Pilgrim High Yield Fund and the assumption by Pilgrim
High Yield Fund of the Nicholas-Applegate High Yield Bond Fund's liabilities.
This Statement of Additional Information of Pilgrim Investment Funds, Inc.
consists of this cover page and the following documents, each of which was filed
electronically with the Securities and Exchange Commission and is incorporated
by reference herein:
(1) The Statement of Additional Information of Pilgrim High Yield Fund dated
November 1, 1998, containing financial statements of the Fund for the fiscal
year ended June 30, 1998, as filed on November 6, 1998;
(2) Financial statements included in the December 31, 1998 Semi-Annual Report
of Pilgrim High Yield Fund, as filed on March __, 1999;
(3) The Statement of Additional Information for Class A, Class B and Class C
Shares of Nicholas-Applegate Mutual Funds dated July 24, 1998, as filed on
August 31, 1998;
(4) The Statement of Additional Information for Class Q Shares of Nicholas-
Applegate Mutual Funds dated July 24, 1998, as filed on August 31, 1998;
(5) Financial statements included in the September 30, 1998 Semi-Annual Report
for Class A, Class B and Class C shares of Nicholas-Applegate High Yield Bond
Fund, as filed on December 3, 1998; and
(6) Financial statements included in the September 30, 1998 Semi-Annual Report
for Class Q shares of Nicholas-Applegate High Yield Bond Fund, as filed on
December 3, 1998.
<PAGE>
This Statement of Additional Information is not a prospectus. A Prospectus/Proxy
Statement dated March __, 1999 relating to the reorganization of
Nicholas-Applegate High Yield Bond Fund may be obtained by writing to Pilgrim
America at 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004 or
calling NAMF at (800) 992-0180. This Statement of Additional Information should
be read in conjunction with the Prospectus/Proxy Statement.
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
Notes to Pro Forma Financial Statements (Unaudited)
1. Basis of Combination
The pro forma combined financial statements reflect the combined financial
position of the Pilgrim High Yield Fund and the Nicholas-Applegate High Yield
Bond Fund as of December 31, 1998 and the pro forma combined results of
operations for the year ended December 31, 1998 for the Pilgrim High Yield Fund
and the period from April 1, 1998 (commencement of operations) to December 31,
1998 for the Nicholas-Applegate High Yield Bond Fund as though the
reorganization had occurred on January 1, 1998.
The pro forma combined financial statements are presented for the information of
the reader and may not necessarily be representative of how the pro forma
combined financial statements would have appeared had the reorganization
actually occurred.
The Pro Forma Combined Portfolio of Investments, Statement of Assets and
Liabilities, and Statement of Operations should be read in conjunction with
the historical financial statements of the funds incorporated by reference in
the Statement of Additional Information.
The pro forma statements give effect to the proposed transfer of the assets and
stated liabilities of the Nicholas-Applegate High Yield Bond Fund in exchange
for shares of the Pilgrim High Yield Fund. Under generally accepted accounting
principles, the historical cost of investment securities will be carried forward
to the surviving entity.
The pro forma statements do not reflect the expenses of either fund in carrying
out the obligations under the proposed Agreement and Plan of Reorganization as
such expenses will be borne by the advisor.
2. Pro Forma Combined Portfolio of Investments
Securities held by the two funds have been combined in the accompanying Combined
Portfolio of Investments. Securities are stated at market value. Historical cost
amounts represent the combined cost basis of the securities.
3. Pro Forma Statement of Assets and Liabilities
Shares outstanding have been adjusted to reflect the conversion of the
Nicholas-Applegate High Yield Bond Fund into Pilgrim High Yield Fund shares
based upon the net asset value of the Pilgrim High Yield Fund at December 31,
1998. Prior to the reorganization, it is expected that all Class I shares of the
Nicholas-Applegate High Yield Bond Fund will be redeemed and there will be no
Class I in the surviving entity.
4. Pro Forma Statements of Operations
The Pro Forma Statement of Operations combines income and expenses of the
Pilgrim High Yield Fund for the year ended December 31, 1998 and for the nine
month period ended December 31, 1998 for the Nicholas-Applegate High Yield Bond
Fund. It is anticipated that after the reorganization the surviving entity's
expense ratio will be reduced by approximately 0.01% due to the large increase
in net assets.
<PAGE>
PILGRIM HIGH YIELD FUND AND NICHOLAS-APPLEGATE HIGH YIELD BOND
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998 (UNAUDITED)
CORPORATE BONDS: 89.9%
<TABLE>
<CAPTION>
COMBINED
PILGRIM NACM TOTAL
Principal MARKET MARKET MARKET
Amount VALUE VALUE VALUE
- ------ ------- ----- -----
<S> <C> <C> <C> <C>
AEROSPACE: 0.9%
$ 4,000,000 (a) BE Aerospace, 9.500%, due 11/01/2008 $4,240,000 $ -- $4,240,000
---------- ---------- ----------
AIR FREIGHT: 0.6%
1,500,000 (a) Atlas Air, Inc., 9.375%, due 11/15/2006 -- 1,524,375 1,524,375
1,500,000 Atlas Air, Inc., 9.250%, due 04/15/2008 -- 1,494,375 1,494,375
---------- ---------- ----------
-- 3,018,750 3,018,750
---------- ---------- ----------
AIRLINES: 0.6%
1,000,000 Trans World Airlines, Inc., 11.500%, due 12/15/2004 -- 856,250 856,250
1,500,000 Trans World Airlines, Inc., 12.000%, due 04/01/2002 -- 1,365,000 1,365,000
1,000,000 Trans World Airlines, Inc., 11.375%, due 03/01/2006 -- 821,250 821,250
---------- ---------- ----------
-- 3,042,500 3,042,500
---------- ---------- ----------
APPAREL: 0.3%
1,400,000 Tuesday Morning Series B, 11.000%, due 12/15/2007 -- 1,365,000 1,365,000
---------- ---------- ----------
AUTOMOTIVE: 3.8%
4,000,000 (a) Breed Technology, 9.250%, due 04/15/2008 3,530,000 -- 3,530,000
5,000,000 Hayes Lemmerz International, Inc., 8.250%,
due 12/15/2008 5,000,000 -- 5,000,000
3,000,000 (a) JH Heafner Co., 10.000%, due 05/15/2008 3,037,500 -- 3,037,500
6,500,000 JH Heafner Co., 10.000%, due 05/15/2008 6,581,250 -- 6,581,250
---------- ---------- ----------
18,148,750 -- 18,148,750
---------- ---------- ----------
BROADCASTING: 5.7%
1,500,000 Avalon Cable Holdings, LLC, 11.875%, due 12/01/2008 -- 838,125 838,125
2,000,000 CD Radio, Inc., 15.000%, due 12/01/2007 -- 1,197,500 1,197,500
2,250,000 Echostar Communications Corp., 12.875%, due 06/01/2004 -- 2,309,062 2,309,062
2,500,000 Fox Family Worldwide, Inc., 10.250%, due 11/01/2007 -- 1,590,625 1,590,625
8,750,000 Fox Family Worldwide, Inc., 9.250%, due 11/01/2007 6,930,000 1,728,125 8,658,125
1,450,000 Fox Liberty Networks LLC, 8.875%, due 08/15/2007 -- 1,479,000 1,479,000
7,000,000 (a) Pegasus Communications, 9.750%, due 12/01/2006 7,026,250 -- 7,026,250
3,000,000 (a) Salem Communications, 9.500%, due 10/01/2007 3,056,250 -- 3,056,250
1,300,000 Source Media, Inc., 12.000%, due 11/01/2004 -- 1,014,000 1,014,000
---------- ---------- ----------
17,012,500 10,156,437 27,168,937
---------- ---------- ----------
BUILDING MATERIALS 0.6%
3,000,000 Republic Group, 9.500%, due 07/15/2008 2,932,500 -- 2,932,500
---------- ---------- ----------
BUSINESS SERVICES 0.2%
1,500,000 (a) American Business Information, 9.500%, due 06/15/2008 1,132,500 -- 1,132,500
---------- ---------- ----------
CATALOG RETAILING: 0.4%
2,000,000 Shop At Home, Inc., 11.000%, due 04/01/2005 -- 2,040,000 2,040,000
---------- ---------- ----------
COMMUNICATIONS: 18.5%
500,000 AMSC Acquisition Company, Inc. Series B, 12.250%,
due 04/01/2008 -- 318,750 318,750
2,000,000 (a) CCPR Services, Inc., 10.000%, due 02/01/2007 1,930,000 -- 1,930,000
2,100,000 Colt Telecom Group, PLC, 12.000%, due 12/15/2006 -- 1,745,625 1,745,625
1,000,000 Convergent Communications, 13.000%, due 04/01/2008 500,000 -- 500,000
1,800,000 Crown Castle International Corp., 10.625%,
due 11/15/2007 -- 1,248,750 1,248,750
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMBINED
PILGRIM NACM TOTAL
Principal MARKET MARKET MARKET
Amount VALUE VALUE VALUE
------ ------- ------ ------
<S> <C> <C> <C> <C>
3,000,000 (a) Dobson Wireline, 12.500%, due 06/15/2008 2,767,500 -- 2,767,500
1,000,000 (a) East Telecom Group PLC, 11.875%, due 12/01/2008 -- 1,017,500 1,017,500
1,725,000 Global Telesystems Group, Inc., 9.875%, due 02/15/2005 -- 1,640,906 1,640,906
8,000,000 Globix Corp., 13.000%, due 05/01/2005 6,700,000 -- 6,700,000
2,000,000 ICG Holdings, Inc., 13.500%, due 09/15/2005 -- 1,660,000 1,660,000
1,375,000 IDT Corp, 8.750%, due 02/15/2006 -- 1,268,438 1,268,438
4,000,000 Iridium LLC, 10.875%, due 07/15/2005 3,315,000 -- 3,315,000
6,000,000 (a) Metromedia Fiber, 10.000%, due 11/15/2008 6,217,500 -- 6,217,500
1,750,000 (a) Metromedia Fiber, 10.000%, due 11/15/2008 -- 1,809,063 1,809,063
6,000,000 (a) MGC Communications, Inc., 13.000%, due 10/01/2004 3,990,000 -- 3,990,000
7,000,000 (a) Nextlink Communications, 10.750%, due 11/15/2008 7,192,500 -- 7,192,500
7,000,000 Northeast Optic Network, 12.750%, due 08/15/2008 6,903,750 -- 6,903,750
1,300,000 Northeast Optic Network, 12.750%, due 08/15/2008 -- 1,278,875 1,278,875
2,000,000 Orbcomm Global LP, Series B, 14.000%, due 08/15/2004 -- 2,070,000 2,070,000
4,000,000 (a) Paging Network, 10.000%, due 10/15/2008 3,900,000 -- 3,900,000
2,000,000 Pathnet, Inc., 12.250%, due 04/15/2008 1,400,000 -- 1,400,000
3,000,000 Phonetel Technologies, 12.000%, due 12/15/2006 1,230,000 -- 1,230,000
500,000 Pinnacle Holdings, Inc., 10.000%, due 03/15/2008 -- 291,875 291,875
4,000,000 (a) Rogers Cantel, Inc., 8.300%, due 10/01/2007 6,000,000 -- 6,000,000
6,000,000 (a) RSL Communications, 10.500%, due 11/15/2008 3,890,000 -- 3,890,000
2,000,000 (a) Spectrasite Holdings, Inc., 12.000%, due 07/15/2008 -- 1,060,000 1,060,000
400,000 Telesystem International Wireless Series B, 13.250%,
due 06/30/2007 -- 180,000 180,000
6,000,000 Teligent, Inc., 11.500%, due 12/01/2007 5,640,000 -- 5,640,000
1,100,000 Teligent, Inc., 11.500%, due 12/01/2007 -- 1,031,250 1,031,250
1,700,000 Viatel, Inc., 11.250%, due 04/15/2008 -- 1,691,500 1,691,500
1,800,000 Winstar Communications, Inc., 14.500%, due 10/15/2005 -- 1,989,000 1,989,000
1,800,000 Winstar Communications, Inc., 15.000%, due 03/01/2007 -- 1,939,500 1,939,500
6,000,000 Winstar Communications, Inc., 10.000%, due 03/15/2008 5,160,000 -- 5,160,000
---------- ---------- ----------
66,736,250 22,241,032 88,977,282
---------- ---------- ----------
COMPUTER SERVICES: 0.4%
575,000 Unisys Corp., 11.750%, due 10/15/2004 -- 667,719 667,719
1,050,000 Unisys Corp., 12.000%, due 04/15/2003 -- 1,176,000 1,176,000
---------- ---------- ----------
-- 1,843,719 1,843,719
---------- ---------- ----------
COMPUTERS/OFFICE AUTOMATION: 0.4%
2,000,000 Apple Computer, Inc., 6.500%, due 02/15/2004 -- 1,855,000 1,855,000
---------- ---------- ----------
CONSTRUCTION - RESIDENTIAL: 0.1%
345,000 K Hovnanian Enterprises, Inc., 11.250%, due 04/15/2002 -- 352,331 352,331
---------- ---------- ----------
CONSUMER DURABLES: 2.3%
7,000,000 (a) Carson, Inc., 10.375%, due 11/01/2007 5,250,000 -- 5,250,000
7,000,000 Samsonite Corp., 10.750%, due 06/15/2008 5,950,000 -- 5,950,000
---------- ---------- ----------
11,200,000 -- 11,200,000
---------- ---------- ----------
CONSUMER ELECTRONICS: 0.3%
1,500,000 (a) Salton/Maxim Housewares, 10.750%, due 12/15/2005 -- 1,494,375 1,494,375
---------- ---------- ----------
EDUCATION: 0.4%
2,000,000 La Petite Acadamy, 10.000%, due 05/15/2008 1,980,000 -- 1,980,000
---------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMBINED
PILGRIM NACM TOTAL
Principal MARKET MARKET MARKET
Amount VALUE VALUE VALUE
------ ------- ------ ------
<S> <C> <C> <C> <C>
ENTERTAINMENT: 4.4%
2,088,000 Ascent Entertainment Group, 11.875%, due 12/15/2004 -- 1,255,410 1,255,410
900,000 Hollywood Entertainment Corp. Series B, 10.625%,
due 08/15/2004 -- 915,750 915,750
1,500,000 Imax Corp., 7.875%, due 12/01/2005 -- 1,511,250 1,511,250
7,000,000 (a) Regal Cinemas, Inc., 9.500%, due 06/01/2008 7,297,500 -- 7,297,500
1,650,000 SFX Entertainment, Inc. Series B, 9.125%,
due 02/01/2008 -- 1,641,750 1,641,750
1,250,000 (a) SFX Entertainment, Inc., 9.125%, due 12/01/2008 -- 1,243,750 1,243,750
9,000,000 (a) Silver Cinemas, Inc., 10.500%, due 04/15/2005 6,390,000 -- 6,390,000
750,000 United Artist Theatre Series B, 9.750%, due 04/15/2008 -- 718,125 718,125
---------- ---------- ----------
13,687,500 7,286,035 20,973,535
---------- ---------- ----------
FINANCIAL: 2.5%
400,000 Amresco, Inc., Series 98-A, 9.875%, due 03/15/2005 -- 285,000 285,000
650,000 CRIIMI MAE, Inc., 9.125%, due 12/01/2002 -- 409,500 409,500
2,500,000 (a) Emergent Group, 10.750%, due 09/15/2004 1,112,500 -- 1,112,500
1,050,000 GS Escrow Corp., 6.750%, due 08/01/2001 -- 1,051,313 1,051,313
5,000,000 (a) GS Escrow Corp., 7.125%, due 08/01/2005 4,993,750 -- 4,993,750
250,000 MCII Holdings (USA), Inc., 12.000%, due 11/15/2002 -- 224,687 224,687
900,000 Px Escrow Corp., 9.625%, due 02/01/2006 -- 497,250 497,250
2,850,000 Resource America, Inc., 12.000%, due 08/01/2004 -- 2,344,125 2,344,125
1,500,000 United Companies Financial, 8.375%, due 07/01/2005 -- 1,215,000 1,215,000
---------- ---------- ----------
6,106,250 6,026,875 12,133,125
---------- ---------- ----------
FOODS: 1.6%
8,000,000 (a) Imperial Holly Corp., 9.750%, due 12/15/2007 7,900,000 -- 7,900,000
---------- ---------- ----------
GAMING: 4.3%
3,000,000 (a) Alliance Gaming Corp., 10.000%, due 08/01/2007 2,707,500 -- 2,707,500
8,000,000 Caesars World, 8.875%, due 05/15/2002 8,040,000 -- 8,040,000
750,000 Hollywood Casino Corp. - Tunica, 12.750%,
due 11/01/2003 -- 796,875 796,875
3,000,000 Isle of Capri Capital Corp., 13.000%, due 08/31/2004 3,187,500 -- 3,187,500
1,000,000 Stations Casinos, 9.625%, due 06/01/2003 -- 1,036,250 1,036,250
5,000,000 (a) Stations Casinos, 8.875%, due 12/01/2008 5,037,500 -- 5,037,500
---------- ---------- ----------
18,972,500 1,833,125 20,805,625
---------- ---------- ----------
HEALTH CARE: 0.7%
2,000,000 (a) Genesis Health, 9.875%, due 01/15/2009 1,920,000 -- 1,920,000
1,500,000 Insight Health Services, Series B, 9.625%,
due 06/15/2008 -- 1,451,250 1,451,250
---------- ---------- ----------
1,920,000 1,451,250 3,371,250
---------- ---------- ----------
HOTELS: 1.2%
6,000,000 HMH Properties, 7.875%, due 08/01/2008 5,857,500 -- 5,857,500
---------- ---------- ----------
HOUSEWARES: 1.3%
6,000,000 (a) Albecca, Inc., 10.750%, due 08/15/2008 6,105,000 -- 6,105,000
---------- ---------- ----------
INDUSTRIAL: 0.8%
4,000,000 (a) Aqua Chem, Inc., 11.250%, due 07/01/2008 3,800,000 -- 3,800,000
---------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMBINED
PILGRIM NACM TOTAL
Principal MARKET MARKET MARKET
Amount VALUE VALUE VALUE
------ ------- ------ ------
<S> <C> <C> <C> <C>
INTERNET SERVICES: 1.2%
2,400,000 (a) At Home Corp. CV, 0.525%, due 12/28/2018 -- 1,350,000 1,350,000
1,500,000 Exodus Communications, 11.250%, due 07/01/2008 -- 1,507,500 1,507,500
1,700,000 Globix Corp., 13.000%, due 05/01/2005 -- 1,419,500 1,419,500
1,750,000 PSINet, Inc., Series B, 10.000%, due 02/15/2005 -- 1,728,125 1,728,125
---------- ---------- ----------
-- 6,005,125 6,005,125
---------- ---------- ----------
LEISURE: 3.9%
10,400,000 (a) Bally Total Fitness Holdings, 9.875%, due 10/15/2007 8,802,500 1,368,500 10,171,000
4,000,000 (a) Bell Sports, Inc., 11.000%, due 08/15/2008 4,110,000 -- 4,110,000
3,000,000 Epic Resorts, LLC, 13.000%, due 06/15/2005 2,906,250 -- 2,906,250
2,000,000 Silverleaf Resorts, Inc., 10.500%, due 04/01/2008 1,725,000 -- 1,725,000
---------- ---------- ----------
17,543,750 1,368,500 18,912,250
---------- ---------- ----------
MACHINERY & EQUIPMENT: 2.1%
1,250,000 United Rentals, Inc. Series B, 9.500%, due 06/01/2008 -- 1,262,500 1,262,500
5,000,000 (a) United Rentals, Inc., 8.800%, due 08/15/2008 3,920,000 977,500 4,897,500
4,000,000 (a) United Rentals, Inc., 9.250%, due 01/15/2009 4,040,000 -- 4,040,000
---------- ---------- ----------
7,960,000 2,240,000 10,200,000
---------- ---------- ----------
MANUFACTURING: 1.6%
9,000,000 Paragon Holdings, 9.625%, due 04/01/2008 7,560,000 -- 7,560,000
---------- ---------- ----------
MEDIA & ENTERTAINMENT: 3.8%
3,000,000 (a) Avalon Cable, 9.375%, due 12/01/2008 3,060,000 -- 3,060,000
4,000,000 (a) Classic Cable Inc., 9.875%, due 08/01/2008 4,170,000 -- 4,170,000
6,000,000 (a) Coaxial Communications, 10.000%, due 08/15/2006 6,180,000 -- 6,180,000
5,000,000 Star Choice Communications, 13.000%, due 12/15/2005 4,975,000 -- 4,975,000
---------- ---------- ----------
18,385,000 -- 18,385,000
---------- ---------- ----------
METALS & MINERALS: 0.8%
750,000 (a) Bulong Operations PTY, 12.500%, due 12/15/2008 -- 750,000 750,000
5,000,000 Metal Management, 10.000%, due 05/15/2008 3,000,000 -- 3,000,000
---------- ---------- ----------
3,000,000 750,000 3,750,000
---------- ---------- ----------
MINES & MINERALS: 1.3%
3,000,000 (a) Anker Coal Group, 9.750%, due 10/01/2007 1,650,000 -- 1,650,000
6,000,000 (a) Lodestar Holdings, Inc., 11.500%, due 05/15/2005 4,650,000 -- 4,650,000
---------- ---------- ----------
6,300,000 -- 6,300,000
---------- ---------- ----------
OIL WELL EQUIPMENT & SERVICES: 0.9%
5,000,000 Eagle Geophysical, Inc., 10.750%, due 07/15/2008 4,200,000 -- 4,200,000
---------- ---------- ----------
PAPER & FOREST PRODUCTS: 1.1%
400,000 Indah Kiat International Finance, Series A,
11.375%, due 06/15/1999 -- 355,000 355,000
5,000,000 Stone Container Corp., 12.250%, due 04/01/2002 5,012,500 -- 5,012,500
--------- --------- ---------
5,012,500 355,000 5,367,500
--------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMBINED
PILGRIM NACM TOTAL
Principal MARKET MARKET MARKET
Amount VALUE VALUE VALUE
------ ------- ------ ------
<S> <C> <C> <C> <C>
PHARMACEUTICALS: 1.9%
6,000,000 (a) Biovail Corporation International, 10.875%,
due 11/15/2005 6,105,000 -- 6,105,000
3,000,000 (a) ICN Pharmaceutical, 8.750%, due 11/15/2008 3,030,000 -- 3,030,000
--------- --------- ---------
9,135,000 -- 9,135,000
--------- --------- ---------
PLASTIC PRODUCTS: 1.0%
1,000,000 Indesco International, 9.750%, due 04/15/2008 935,000 -- 935,000
4,000,000 (a) Moll Industries, 10.500%, due 07/01/2008 3,960,000 -- 3,960,000
--------- --------- ---------
4,895,000 -- 4,895,000
--------- --------- ---------
POLLUTION CONTROL: 0.7%
3,500,000 Marsulex, Inc., 9.625%, due 07/01/2008 3,591,875 -- 3,591,875
--------- --------- ---------
PRINTING: 1.5%
7,000,000 (a) Premier Graphics, 11.500%, due 12/01/2005 7,008,750 -- 7,008,750
--------- --------- ---------
PUBLISHING: 1.5%
250,000 American Lawyer Media, Inc., Series B, 9.750%,
due 12/15/2007 -- 260,000 260,000
750,000 (a) Big Flower Press Holding, 8.625%, due 12/01/2008 -- 750,938 750,938
6,000,000 (a) Primark Corp., 9.250%, due 12/15/2008 6,015,000 -- 6,015,000
--------- --------- ---------
6,015,000 1,010,938 7,025,938
--------- --------- ---------
REAL ESTATE: 0.4%
2,250,000 Bluegreen Corp., Series B, 10.500%,
due 04/01/2008 -- 2,041,875 2,041,875
---------- --------- ----------
RESTAURANTS: 0.4%
1,750,000 Foodmaker, Inc., 8.375%, due 04/15/2008 -- 1,756,562 1,756,562
---------- --------- ----------
RETAIL: 9.7%
6,000,000 Advance Stores Co., 10.250%, due 04/15/2008 6,090,000 -- 6,090,000
2,550,000 Amazon.Com, Inc., 10.000%, due 05/01/2008 -- 1,708,500 1,708,500
5,000,000 (a) Big 5 Corp., 10.875%, due 11/15/2007 5,125,000 -- 5,125,000
6,000,000 Cluett American Corp., 10.125%, due 05/15/2008 5,700,000 -- 5,700,000
150,000 CompUSA, Inc., 9.500%, due 06/15/2000 -- 151,125 151,125
8,000,000 CSK Auto, Inc., 11.000%, due 11/01/2006 8,440,000 -- 8,440,000
1,249,000 Michaels Stores, Inc., 10.875%, due 06/15/2006 -- 1,323,940 1,323,940
1,000,000 Musicland Group, Inc. Series B, 9.875%, due 03/15/2008 -- 977,500 977,500
750,000 Musicland Group, Inc., 9.000%, due 06/15/2003 -- 723,750 723,750
4,000,000 Sonic Automotive, Inc., 11.000%, due 08/01/2008 3,885,000 -- 3,885,000
7,000,000 Tuesday Morning, 11.000%, due 12/15/2007 6,842,500 -- 6,842,500
357,000 Twin Laboratories, Inc., 10.250%, due 05/15/2006 -- 381,097 381,097
6,000,000 (a) United Auto Group, 11.000%, due 07/15/2007 5,280,000 -- 5,280,000
---------- --------- ----------
41,362,500 5,265,912 46,628,412
---------- --------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMBINED
PILGRIM NACM TOTAL
Principal MARKET MARKET MARKET
Amount VALUE VALUE VALUE
------ ------- ------ ------
<S> <C> <C> <C> <C>
SHIPPING: 0.6%
1,675,000 Sea Containers, Series A, 12.500%, due 12/01/2004 -- 1,842,500 1,842,500
2,999,700 Ermis Maritime Holdings Limited, 12.500%, due 03/15/2006 899,910 -- 899,910
---------- --------- ----------
899,910 1,842,500 2,742,410
---------- --------- ----------
STEEL: 0.6%
3,000,000 Schuff Steel Co., 10.500%, due 06/01/2008 2,670,000 -- 2,670,000
---------- --------- ----------
TEXTILE: 0.9%
4,000,000 Westpoint Steven, 7.875%, due 06/15/2008 4,110,000 -- 4,110,000
---------- --------- ----------
TRANSPORTATION: 1.7%
5,000,000 Amtran, Inc., 9.625%, due 12/15/2005 5,000,000 -- 5,000,000
3,000,000 (a) Atlas Air, Inc., 9.375%, due 11/15/2006 3,056,250 -- 3,056,250
---------- --------- ----------
8,056,250 -- 8,056,250
----------- ----------- -----------
Total Corporate Bonds (Cost $364,175,066, $89,437,901,
and $453,612,967, respectively.) 345,436,785 86,642,841 432,079,626
----------- ----------- -----------
STOCK PURCHASE WARRANTS, COMMON AND PREFERRED STOCK: 1.3%
SHARES
- ------
BROADCASTING: 0.3%
14,045 Capstar Broadcasting Corp, 12.00%, PIK Preferred -- 1,604,641 1,604,641
----------- ----------- -----------
COMMUNICATIONS: 0.0%
8,000 (a) Bell Technology Group, Warrants -- -- --
1,700 Bell Technology Group, Variable Rate Obligation -- 17 17
4,000 (a) Convergent Communications, Warrants -- -- --
2,000 (a) MGC Communication 64,000 -- 64,000
2,000 (a) Pathnet, Inc., Warrants -- -- --
----------- ----------- -----------
64,000 17 64,017
----------- ----------- -----------
LEISURE: 0.0%
3,000 (a) Epic Resorts, LLC, Warrants -- -- --
----------- ----------- -----------
MEDIA & ENTERTAINMENT: 0.0%
115,800 (a) Star Choice Communications, Warrants -- -- --
----------- ----------- -----------
RENTAL & LEASING: 0.5%
50,000 (a) United Rentals Trust I, 6.50% Preferred -- 2,406,250 2,406,250
----------- ----------- -----------
SHIPPING: 0.0%
2,727 Ermis Maritime Holdings Limited, Warrants -- -- --
----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMBINED
PILGRIM NACM TOTAL
MARKET MARKET MARKET
Shares VALUE VALUE VALUE
------ ------- ------ ------
<S> <C> <C> <C> <C>
SPECIALTY RETAILING: 0.1%
25,000 Musicland Stores Corp. -- 373,437 373,437
----------- ----------- -----------
TELECOMMUNICATIONS: 0.4%
500 American Mobile, Variable Rate Obligation -- 1,640 1,640
7,500 Crown Castle International Corp. -- 176,250 176,250
150,000 (a) Crown Castle International Corp., 12.75% Preferred -- 1,513,125 1,513,125
70 Dobson Communications, Inc., 12.25%, PIK Preferred -- 6,288 6,288
1,679 IXC Communications, Inc., Series B, 12.50%,
PIK Preferred -- 171,656 171,656
501 Viatel, Inc., Series A, 10.00%, PIK Preferred -- 56,051 56,051
----------- ----------- -----------
-- 1,925,010 1,925,010
----------- ----------- -----------
Total Stock Purchase Warrants, Common and
Preferred Stock (Cost $70,000, $5,650,789,
and $5,720,789, respectively.) 64,000 6,309,355 6,373,355
----------- ----------- -----------
SHORT-TERM INVESTMENTS: 5.8%
COMMERCIAL PAPER: 5.8%
$ 19,100,000 General Electric Capital Corp., 5.000%,
due 01/04/1999 19,100,000 -- 19,100,000
1,029,000 Wisconsin Public Services, 4.950%,
due 01/04/1999 -- 1,029,000 1,029,000
7,714,000 Merrill Lynch, 5.050%, due 01/04/1999 7,714,000 -- 7,714,000
----------- ----------- -----------
Total Short-Term Investments (Cost $26,802,795,
$1,028,576, and $27,831,371, respectively.) 26,814,000 1,029,000 27,843,000
----------- ----------- -----------
TOTAL INVESTMENTS IN SECURITIES (COST $391,047,861,
$96,117,266, AND $487,165,127, RESPECTIVELY.) 96.6% 372,314,785 98.9% 93,981,196 97.0% 466,295,981
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES-NET 3.4% 13,133,085 1.1% 1,046,692 3.0% 14,179,777
----- ------------ ----- ----------- ----- ------------
TOTAL NET ASSETS 100.0% $385,447,870 100.0% $95,027,888 100.0% $480,475,758
===== ============ ===== =========== ===== ============
</TABLE>
- ----------
(a) Issues designated 144A.
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PILGRIM NACM
HIGH YIELD HIGH YIELD PRO FORMA
FUND BOND FUND COMBINED
---- --------- --------
<S> <C> <C> <C>
ASSETS:
Investments in securities at market
value (Cost $391,047,861 $96,117,266,
and $487,165,127 respectively) $372,314,785 $ 93,981,196 $466,295,981
Cash 2,486,950 864 2,487,814
Receivables:
Investment securities sold -- -- --
Dividends and interest 7,914,697 1,687,517 9,602,214
Fund shares sold 6,716,269 513,652 7,229,921
Due from affiliate 36,164 -- 36,164
Other -- 18,604 18,604
Prepaid expenses 98,219 180 98,399
------------ ------------ ------------
Total Assets 389,567,084 96,202,013 485,769,097
------------ ------------ ------------
LIABILITIES:
Dividend payable -- 846,201 846,201
Payable for fund shares redeemed 1,574,513 100,009 1,674,522
Payable to affiliate 2,961 4,024 6,985
Payable for investment securities purchased 2,468,000 -- 2,468,000
Other accrued expenses and liabilities 73,740 223,891 297,631
------------ ------------ ------------
Total Liabilities 4,119,214 1,174,125 5,293,339
------------ ------------ ------------
NET ASSETS $385,447,870 $ 95,027,888 $480,475,758
============ ============ ============
Net Assets consist of:
Paid-in capital $428,102,143 $100,817,641 $528,919,784
Undistributed (overdistributed) net
investment income 409,195 (324,992) 84,203
Accumulated net realized losses
on investments (24,319,187) (3,328,691) (27,647,878)
Net unrealized depreciation of investments (18,744,281) (2,136,070) (20,880,351)
------------ ------------ ------------
Net Assets $385,447,870 $ 95,027,888 $480,475,758
============ ============ ============
CLASS A:
Net assets $127,391,677 $ 17,313,361 $144,705,038
Shares authorized 80,000,000 Unlimited 80,000,000
Shares outstanding 20,640,994 1,489,678 23,453,005
Net asset value and redemption
price per share $ 6.17 $ 11.62 $ 6.17
Maximum offering price per share(1) $ 6.48 $ 12.20 $ 6.48
CLASS B:
Net assets $233,916,497 $ 42,787,066 $276,703,563
Shares authorized 80,000,000 Unlimited 80,000,000
Shares outstanding 37,978,541 3,680,867 44,919,410
Net asset value, redemption and offering
price per share(2) $ 6.16 $ 11.62 $ 6.16
CLASS C:
Net assets N/A $ 20,161,834 $ 20,161,834
Shares authorized N/A Unlimited Unlimited
Shares outstanding N/A 1,733,990 3,273,025
Net asset value and redemption price
per share (2) N/A $ 11.63 $ 6.16
CLASS M:
Net assets $ 24,139,696 N/A $ 24,139,696
Shares authorized 40,000,000 N/A 40,000,000
Shares outstanding 3,917,206 N/A 3,917,206
Net asset value and redemption price
per share $ 6.16 N/A $ 6.16
Maximum offering price per share (3) $ 6.37 N/A $ 6.37
CLASS I: (4)
Net assets N/A $ 9,750,844 $ 9,750,844
Shares authorized N/A Unlimited N/A
Shares outstanding N/A 791,304 N/A
Net asset value and redemption price
per share N/A $ 12.32 N/A
CLASS Q:
Net assets N/A $ 5,014,783 $ 5,014,783
Shares authorized N/A Unlimited Unlimited
Shares outstanding N/A 430,943 814,326
Net asset value and redemption price
per share (2) N/A $ 11.64 $ 6.16
</TABLE>
- ----------
(1) Maximum offering price is computed at 100/95.25 of net asset value for
Pilgrim High Yield Fund, and the Nicholas-Applegate High Yield Bond Fund.
(2) Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
(3) Maximum offering price is computed at 100/96.75 of net asset value for
Pilgrim High Yield Fund.
(4) Pilgrim High Yield Fund will not be acquiring the assets of Class I. It is
anticipated that prior to the reorganization date all Class I shares of the
Nicholas-Applegate High Yield Bond Fund will be redeemed out by
shareholders.
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the periods ended December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
PILGRIM NACM HIGH
HIGH YIELD FUND YIELD BOND FUND
TWELVE MONTHS NINE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31, PRO FORMA
1998 1998 COMBINED
------------ ----------- ------------
Investment Income:
Interest $ 26,692,906 $ 5,331,074 $ 32,023,980
Dividends -- 299,033 299,033
------------ ----------- ------------
Total investment income 26,692,906 5,630,107 32,323,013
------------ ----------- ------------
EXPENSES:
Investment management fees 1,560,947 321,573 1,882,520
Distribution expenses
Class A Shares* 488,730 292,227 780,957
Class B (Q) Shares 1,272,112 -- 1,272,112
Class M (C) Shares 119,222 -- 119,222
Transfer agent and registrar
fees 317,712 13,594 331,306
Professional fees 47,417 170,988 218,405
Reports to shareholders 93,191 112,297 205,488
Registration and filing fees 105,473 19,943 125,416
Recordkeeping and pricing fees 55,637 54,399 110,036
Custodian fees 86,014 11,138 97,152
Administration fee -- 55,340 55,340
Shareholder servicing fees 27,895 -- 27,895
Directors fees 13,630 2,457 16,087
Miscellaneous 5,811 3,846 9,657
------------ ----------- ------------
Total expenses 4,193,791 1,057,802 5,251,593
------------ ----------- ------------
Less:
Waived and reimbursed fees (305,712) (271,918) (577,630)
Earnings credits (56,197) -- (56,197)
------------ ----------- ------------
Net expenses 3,831,882 785,884 4,617,766
------------ ----------- ------------
Net investment income 22,861,024 4,844,223 27,705,247
------------ ----------- ------------
REALIZED AND UNREALIZED
LOSSES FROM INVESTMENTS:
Net realized losses from
investments (15,317,627) (3,578,768) (18,896,395)
Net change in unrealized
depreciation of investments (21,982,010) (2,493,213) (24,475,223)
----------- ------------ ------------
Net loss from investments (37,299,637) (6,071,981) (43,371,618)
------------ ----------- ------------
Net decrease in net assets
resulting from operations $(14,438,613) $(1,227,758) $(15,666,371)
============ =========== ============
* NACM shows the sum of all distribution fees in their financial statements
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Reference is made to Article VIII, Section 8 of the Registrant's By-Laws
filed as Exhibit 2.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against policy as expressed in the Act and is, therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a Director, officer or controlling person of the Registrant in the
successful defense of any action, a suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 16. EXHIBITS
(1)(A) Form of Articles of Restatement of Articles of Incorporation(1)
(1)(B) Form of Articles of Amendment(2)
(2) Form of Amended and Restated Bylaws(1)
(3) Not Applicable
(4) Form of Agreement and Plan of Reorganization(3)
(5) See Exhibits 1 and 2.
(6) Form of Investment Management Agreement - Pilgrim High Yield
Fund(1)
(7)(A) Form of Underwriting Agreement(1)
(7)(B) Form of Selling Group Agreement(1)
(8) Not Applicable
(9)(A) Form of Custody Agreement(1)
(9)(B) Form of Recordkeeping Agreement(1)
(10)(A) Form of Service and Distribution Plan for Class A Shares(1)
(10)(B) Form of Service and Distribution Plan for Class B Shares
(10)(C) Form of Service and Distribution Plan for Class C Shares*
C-1
<PAGE>
(10)(D) Form of Service and Distribution Plan for Class M Shares(1)
(10)(E) Form of Service and Distribution Plan for Class Q Shares*
(11) Opinion and Consent of Counsel
(12) Opinion and Consent of Counsel supporting tax matters and
consequences*
(13) Form of Shareholder Servicing Agreement(1)
(14) Consent of Independent Auditors
(15) Not Applicable
(16) Powers of Attorney
(17) Not Applicable
- ----------
(1) Incorporated by reference to Post-Effective Amendment No. 38 to the
Registration Statement on Form N-1A as filed on October 30, 1997.
(2) Incorporated by reference to Post-Effective Amendment No. 40 to the
Registration Statement on Form N-1A as filed on October 27, 1998.
(3) Filed herewith as Appendix "A" to the Proxy Statement/Prospectus.
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act [17 CFR 230.145c], the reoffering prospectus will
contain the information called for by the applicable registration form
for reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other items of the applicable
form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to
the registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act,
each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.
C-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Phoenix and State of Arizona on the 26th day of
February, 1999.
PILGRIM INVESTMENT FUNDS, INC.
By: /s/ Robert W. Stallings
-----------------------------
Robert W. Stallings
Chairman
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Robert W. Stallings Director and President February 26, 1999
- ---------------------------- (Principal Executive Officer)
Robert W. Stallings
- ---------------------------- Director February 26, 1999
Mary A. Baldwin *
- ---------------------------- Director February 26, 1999
John P. Burke *
- ---------------------------- Director February 26, 1999
Al Burton *
- ---------------------------- Director February 26, 1999
Jock Patton *
- ---------------------------- Principal Financial Officer February 26, 1999
Michael A. Roland*
* By: /s/ Robert W. Stallings
----------------------------
Robert W. Stallings
Attorney-in-Fact**
** Executed pursuant to powers of attorney filed herewith.
C-3
<PAGE>
Exhibit Index
-------------
Exhibit (10)(B) Form of Service and Distribution Plan for Class B Shares
Exhibit (11) Opinion and Consent of Counsel
Exhibit (14) Consent of Independent Auditors
Exhibit (16) Powers of Attorney
AMENDED AND RESTATED
SERVICE AND DISTRIBUTION PLAN FOR
PILGRIM INVESTMENT FUNDS, INC.
CLASS B SHARES
WHEREAS, Pilgrim Investment Funds, Inc. (the "Company") engages in business
as an open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Company are currently divided into
two series, PILGRIM MAGNACAP FUND and PILGRIM HIGH YIELD FUND (the "Funds);
WHEREAS, shares of common stock of the Funds are divided into classes of
shares, one of which is designated Class B;
WHEREAS, the Company employs Pilgrim Securities, Inc. as distributor of the
securities of which it is the issuer and may from time to time retain, pursuant
to the terms of a distribution agreement with such person (each, an
"Underwriting Agreement") other persons to so act pursuant to the Plan (each
such person so acting from time to time, the "Distributor"); and
WHEREAS, the Company and the Distributor have entered into an Underwriting
Agreement pursuant to which the Company has employed the Distributor in such
capacity during the continuous offering of shares of the Company; and
WHEREAS, the Company wishes to amend and restate the Plan as set forth
hereinafter, such amendments to be effective with respect to Class B shares of
issued prior to or after the date hereof.
NOW, THEREFORE, the Company hereby adopts this Plan on behalf of the Funds
with respect to its Class B shares, in accordance with Rule 12b-l under the Act,
on the following terms and conditions:
1. A. Each Fund shall pay to each Distributor, as compensation for
acting as principal distributor in respect of the Class B Shares (as hereinafter
defined) of the Fund its "Allocable Portion" (as hereinafter defined) of a fee
(the "Distribution Fee"), which shall accrue daily at the rate of 0.75% per
annum of the Fund's average daily net assets attributable to Class B Shares of
the Fund and be payable monthly or at such other intervals as the Directors
shall determine, subject to any applicable restriction imposed by rules of the
National Association of Securities Dealers, Inc. ("NASD")
The Underwriting Agreement between the Company and each Distributor
relating to the Class B Shares shall provide that:
(I) the Distributor will be deemed to have performed all services
required to be performed in order to be entitled to receive its
Allocable Portion (as defined below) of the Distribution Fee
payable in respect of the Class B Shares upon the settlement date
of each sale of a "Commission Share" (as defined in the Allocation
Schedule attached to the Underwriting Agreement) taken into
account in determining such Distributor's Allocable Portion of
such Distribution Fee;
<PAGE>
(II) notwithstanding anything to the contrary in this Plan or the
Underwriting Agreement, each Fund's obligation to pay such
Distributor its Allocable Portion of the Distribution Fee payable
shall not be terminated or modified (including, without
limitation, by change in the rules applicable to the conversion of
Class B Shares into shares of another class) for any reason
(including a termination of the Underwriting Agreement between
such Distributor and the Fund) except:
(a) to the extent required by a change in the Investment
Company Act of 1940 (the "Act"), the rules and regulations
under the Act, the Conduct Rules of the NASD or other
applicable law, in each case enacted or promulgated after
December 10, 1998,
(b) on a basis which does not alter the Distributor's Allocable
Portion of the Distribution Fee computed with reference to
Commission Shares the Date of Original Issuance (as defined
in the Allocation Schedule attached to the Underwriting
Agreement) of which occurs on or prior to the adoption of
such termination or modification and with respect to Free
Shares (as defined in the Allocation Schedule) which would
be attributed to such Distributor under the Allocation
Schedule with reference such Commission Shares,
(c) in connection with a "Complete Termination" (as hereinafter
defined) of the Plan; or
(d) on a basis, determined by the Board of Directors of the
Company, including a majority of those who are not
"interested persons" of the Company (as such term is
defined in the Act), acting in good faith, so long as from
and after the effective date of such modification or
termination, neither the Company or any Affected Fund (as
hereinafter defined) nor Pilgrim Securities, Inc. or any
successor sponsor of the Affected Funds or any affiliate of
any of the foregoing, pay, directly or indirectly, a fee,
trailer fee, or expense reimbursement to any person for the
provision of shareholder services to the holders of Class B
Shares;
(III) the Funds will not take any action to waive or change any CDSC in
respect of the Class B Shares the Date of Original Issuance (as
defined in the Allocation Schedule attached to the Underwriting
Agreement) of which occurs, on or prior to the taking of such
action except as provided in the Funds' prospectus or statement of
additional information on the date such Commission Share was
issued, without the consent of such Distributor and its
Transferees;
-2-
<PAGE>
(IV) notwithstanding anything to the contrary in this Distribution Plan
or the Underwriting Agreement, neither the termination of such
Distributor's role as principal distributor of the Class B Shares,
nor the termination of such Underwriting Agreement nor the
termination of this Plan will terminate such Distributor's right
to its Allocable Portion of the CDSCs; and
(V) notwithstanding anything to the contrary in the Distribution Plan
or the Underwriting Agreement, such Distributor may assign, sell
or pledge (collectively, "Transfer") its rights to its Allocable
Portion of the Distribution Fees and CDSCs and, upon receipt of
notice of such Transfer, each Fund shall pay to the assignee,
purchaser or pledgee (collectively with their subsequent
transferees, "Transferees"), as third party beneficiaries of such
Underwriting Agreement, such portion of such Distributor's
Allocable Portion of the Distribution Fees or CDSCs in respect of
the Class B Shares so sold or pledged, and except as provided in
(II) above and notwithstanding anything of the contrary set forth
in this Plan or in the Underwriting Agreement, each Fund's
obligation to pay such Distributor's Allocable Portion of the
Distribution Fees and CDSCs payable in respect of the Class B
Shares shall be absolute and unconditional and shall not be
subject to dispute, offset, counterclaim or any defense
whatsoever, at law or equity, including, without limitation, any
of the foregoing based on the insolvency or bankruptcy of such
Distributor.
For purposes of this Plan, the term "Allocable Portion" of Distribution
Fees or CDSCs payable in respect of the Class B Shares as applied to any
Distributor shall mean the portion of such Distribution Fees or CDSCs payable in
respect of such Class B Shares allocated to such Distributor in accordance with
the Allocation Schedule (attached to the Underwriting Agreement as it relates to
the Class B Shares). For purposes of this Plan and each Distribution Agreement,
the term "Complete Termination" of the Plan means a termination of this Plan and
every other distribution plan of the Funds for Class B shares, each successor
trust or fund, and each trust or fund acquiring a substantial portion of the
assets of the Funds (collectively, the "Affected Funds") involving the complete
cessation of the payment of Distribution Fees in respect of all current Class B
shares of each Affected Fund and each future class of shares of each Affected
Fund which has substantially similar characteristics to the shares of the
current Class B shares of the Funds, including the manner of payment and amount
of sales charge, contingent deferred sales charge or other similar charges borne
directly or indirectly by the holders of such shares (all such classes of shares
"Class B Shares").
B. The Funds shall pay to the Distributor, as the distributor of the Class
B shares of the Funds, a service fee at the rate of 0.25% on an annualized basis
of the average daily net assets of the Funds' Class B shares, provided that, at
any time such payment is made, whether or not this Plan continues in effect, the
making thereof will not cause the limitation upon such payments established by
this Plan to be exceeded. Such fee shall be calculated and accrued daily and
paid at such intervals as the Board of Directors shall determine, subject to any
applicable restriction imposed by rules of the NASD.
-3-
<PAGE>
2. The amount set forth in paragraph 1.A. of this Plan shall be paid for
the Distributor's services as distributor of the shares of the Funds in
connection with any activities or expenses primarily intended to result in the
sale of the Class B shares of the Funds, including, but not limited to, payment
of compensation, including incentive compensation, to securities dealers (which
may include the Distributor itself) and other financial institutions and
organizations (collectively, the "Service Organizations") to obtain various
distribution related and/or administrative services for the Funds. These
services include, among other things, processing new shareholder account
applications, preparing and transmitting to the Funds' Transfer Agent computer
processable tapes of all transactions by customers and serving as the primary
source of information to customers in answering questions concerning the Funds
and their transactions with the Funds. The Distributor is also authorized to
engage in advertising, the preparation and distribution of sales literature and
other promotional activities on behalf of the Funds. In addition, this Plan
hereby authorizes payment by the Funds of the cost of preparing, printing and
distributing Fund Prospectuses and Statements of Additional Information to
prospective investors and of implementing and operating the Plan. Distribution
expenses also include an allocation of overhead of the Distributor and accruals
for interest on the amount of distribution expenses that exceed distribution
fees and contingent deferred sales charges received by the Distributor. Payments
under the Plan are not tied exclusively to actual distribution and service
expenses, and the payments may exceed distribution and service expenses actually
incurred.
The amount set forth in paragraph 1.B. of this Plan may be used by the
Distributor to pay securities dealers (which may include the Distributor itself)
and other financial institutions and organizations for servicing shareholder
accounts, including a continuing fee which may accrue immediately after the sale
of shares.
3. This Plan shall not take effect until it, together with any related
agreements, has been approved by votes of a majority of both (a) the Directors
of the Company and (b) those Directors of the Company who are not "interested
persons" of the Company (as defined in the Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-l Directors"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
4. After approval as set forth in paragraph 3, this Plan shall take effect.
The Plan shall continue in full force and effect as to the Class B shares of the
Funds for so long as such continuance is specifically approved at least annually
in the manner provided for approval of this Plan in paragraph 3.
5. The Distributor shall provide to the Directors of the Company, and the
Directors shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
-4-
<PAGE>
6. This Plan may be terminated as to the Funds at any time, without payment
of any penalty, by vote of the Directors of the Company, by vote of a majority
of the Rule 12b-l Directors, or by a vote of a majority of the outstanding
voting securities of Class B shares of the Funds on not more than 30 days'
written notice to any other party to the Plan.
7. This Plan may not be amended to increase materially the amount of
distribution fee (including any service fee) provided for in paragraph 1 hereof
unless such amendment is approved by a vote of the shareholders of the Class B
shares of each of the Funds, and no material amendment to the Plan shall be made
unless approved in the manner provided for approval and annual renewal in
paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of Directors
who are not interested persons (as defined in the Act) of the Company shall be
committed to the discretion of the Directors who are not such interested
persons.
9. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof, for a period of
not less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
10. The provisions of this Plan are severable as to each series, and any
action to be taken with respect to this Plan shall be taken separately for each
series affected by the matter.
Last revised: November 30, 1998
-5-
[LETTERHEAD OF DECHERT PRICE & RHOADS]
February 26, 1999
Pilgrim Investment Funds, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4424
Re: Pilgrim Investment Funds, Inc.
Dear Sirs:
We have acted as counsel to Pilgrim Investment Funds, Inc., a Maryland
corporation (the "Company"), and we have a general familiarity with the
Company's business operations, practices and procedures. You have asked for our
opinion regarding the issuance of shares of common stock by the Company in
connection with the acquisition by Pilgrim High Yield Fund, a series of the
Company, of the assets of Nicholas-Applegate High Yield Bond Fund, a series of
Nicholas-Applegate Mutual Funds, which will be registered on a Form N-14
Registration Statement (the "Registration Statement") to be filed by the Company
with the Securities and Exchange Commission.
We have examined originals or certified copies, or copies otherwise
identified to our satisfaction as being true copies, of various corporate
records of the Company and such other instruments, documents and records as we
have deemed necessary in order to render this opinion. We have assumed the
genuineness of all signatures, the authenticity of all documents examined by us
and the correctness of all statements of fact contained in those documents.
On the basis of the foregoing, it is our opinion that the shares of common
stock of the Company being registered under the Securities Act of 1933 in the
Registration Statement have been duly authorized and will be legally and validly
issued, fully paid and non-assessable pon transfer of the assets of
Nicholas-Applegate High Yield Bond Fund pursuant to the terms of the Agreement
and Plan of Reorganization included in the Registration Statement.
<PAGE>
Pilgrim Investment Funds, Inc.
February 26, 1999
Page 2
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to all references to our firm therein.
Very truly yours,
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Pilgrim Investment Funds, Inc.
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Financial Highlights" in the Proxy
Statement/Prospectus.
KPMG LLP
Los Angeles, California
March 2, 1999
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim Investment Funds, Inc. (the "Fund"), constitutes and
appoints James R. Reis, James M. Hennessy, Jeffrey S. Puretz, and Karen L.
Anderberg and each of them, his true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution for his in his name, place
and stead, in any and all capacities, to sign the Fund's registration statement
on Form N-14 and any and all amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as she
might or could do in person, hereby ratifying and conforming all that said
attorneys-in-fact and agents, or any of them, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Dated: February 1, 1999
/s/ Robert W. Stallings
--------------------------------
Robert W. Stallings
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim Investment Funds, Inc. (the "Fund"), constitutes and
appoints Robert W. Stallings, James R. Reis, James M. Hennessy, Jeffrey S.
Puretz, and Karen L. Anderberg and each of them, her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution
for her in her name, place and stead, in any and all capacities, to sign the
Fund's registration statement on Form N-14 and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as she might or could do in person, hereby ratifying and
conforming all that said attorneys-in-fact and agents, or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: February 1, 1999
/s/ Mary A. Baldwin
--------------------------------
Mary A. Baldwin
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim Investment Funds, Inc. (the "Fund"), constitutes and
appoints Robert W. Stallings, James R. Reis, James M. Hennessy, Jeffrey S.
Puretz, and Karen L. Anderberg and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution
for his in his name, place and stead, in any and all capacities, to sign the
Fund's registration statement on Form N-14 and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as she might or could do in person, hereby ratifying and
conforming all that said attorneys-in-fact and agents, or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: February 1, 1999
/s/ John P. Burke
--------------------------------
John P. Burke
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim Investment Funds, Inc. (the "Fund"), constitutes and
appoints Robert W. Stallings, James R. Reis, James M. Hennessy, Jeffrey S.
Puretz, and Karen L. Anderberg and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution
for his in his name, place and stead, in any and all capacities, to sign the
Fund's registration statement on Form N-14 and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as she might or could do in person, hereby ratifying and
conforming all that said attorneys-in-fact and agents, or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: February 1, 1999
/s/ Al Burton
--------------------------------
Al Burton
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Pilgrim Investment Funds, Inc. (the "Fund"), constitutes and
appoints Robert W. Stallings, James R. Reis, James M. Hennessy, Jeffrey S.
Puretz, and Karen L. Anderberg and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution
for his in his name, place and stead, in any and all capacities, to sign the
Fund's registration statement on Form N-14 and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as she might or could do in person, hereby ratifying and
conforming all that said attorneys-in-fact and agents, or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: February 1, 1999
/s/ Jock Patton
--------------------------------
Jock Patton
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being Senior Vice
President and Principal Financial Officer of Pilgrim Investment Funds, Inc. (the
"Fund"), constitutes and appoints Robert W. Stallings, James R. Reis, James M.
Hennessy, Jeffrey S. Puretz, and Karen L. Anderberg and each of them, his true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for his in his name, place and stead, in any and all capacities,
to sign the Fund's registration statement on Form N-14 and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as she might or could do in person, hereby
ratifying and conforming all that said attorneys-in-fact and agents, or any of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 1, 1999
/s/ Michael A. Roland
--------------------------------
Michael A. Roland
