Pilgrim Government Securities Fund and
Pilgrim Government Securities Income Fund
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 992-0180
February 8, 2000
Dear Shareholder:
Your Board of Trustees/Directors has called a Special Meeting of
Shareholders of the Pilgrim Government Securities Fund (formerly, the Northstar
Government Securities Fund) and the Pilgrim Government Securities Income Fund
(the "Funds"), as applicable, each scheduled to be held at 10:00 a.m., local
time, on March 24, 2000 at 40 North Central Avenue, Suite 1200, Phoenix, Arizona
85004.
The Board of Trustees of the Pilgrim Government Securities Fund and the
Board of Directors of the Pilgrim Government Securities Income Fund each have
approved a reorganization of the Pilgrim Government Securities Fund into the
Pilgrim Government Securities Income Fund, which is managed by Pilgrim
Investments, Inc. and is part of the Pilgrim Funds (the "Reorganization"). If
approved by shareholders, you would become a shareholder of the Pilgrim
Government Securities Income Fund on the date that the Reorganization occurs.
The Pilgrim Government Securities Income Fund has investment objectives and
policies that are substantially similar to those of Pilgrim Government
Securities Fund. The Reorganization is expected to result in operating expenses
that are lower for shareholders.
You are being asked to vote to approve an Agreement and Plan of
Reorganization. The accompanying document describes the proposed transaction and
compares the policies and expenses of each of the Funds for your evaluation.
After careful consideration, the Board of Trustees of the Pilgrim
Government Securities Fund and the Board of Directors of the Pilgrim Government
Securities Income Fund each unanimously approved this proposal and recommended
shareholders vote "FOR" the proposal.
A Proxy Statement/Prospectus that describes the Reorganization is enclosed.
We hope that you can attend the applicable 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 MARCH 23, 2000.
The Funds are using Shareholder Communications Corporation, a professional
proxy solicitation firm, to assist shareholders in the voting process. As the
date of the meetings approaches, if we have not already heard from you, you may
receive a telephone call from Shareholder Communications Corporation reminding
you to exercise your right to vote.
We appreciate your participation and prompt response in this matter and
thank you for your continued support.
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings, President
<PAGE>
Pilgrim Government Securities Fund and
Pilgrim Government Securities Income Fund
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 992-0180
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS OF
PILGRIM GOVERNMENT SECURITIES FUND AND
PILGRIM GOVERNMENT SECURITIES INCOME FUND
SCHEDULED FOR MARCH 24, 2000
To the Shareholders:
Special Meetings of Shareholders of the Pilgrim Government Securities Fund
(formerly, Northstar Government Securities Fund) and the Pilgrim Government
Securities Income Fund are scheduled for March 24, 2000 at 10:00 a.m., local
time, at 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004.
The purposes of the Special Meeting of the Pilgrim Government Securities
Fund are as follows:
1. To approve an Agreement and Plan of Reorganization providing for the
acquisition of all of the assets and liabilities of Pilgrim Government
Securities Fund by Pilgrim Government Securities Income Fund; and
2. To transact such other business as may properly come before the
Special Meeting of Shareholders or any adjournments thereof.
The purposes of the Special Meeting of the Pilgrim Government Securities
Income Fund are as follows:
1. To approve an Agreement and Plan of Reorganization providing for the
acquisition of all of the assets and liabilities of the Pilgrim
Government Securities Fund by the Pilgrim Government Securities Income
Fund; and
2. To transact such other business as may properly come before the
Special Meeting of Shareholders or any adjournment thereof.
Shareholders of record at the close of business on January 24, 2000 are
entitled to notice of, and to vote at, their respective meeting. Your attention
is called to the accompanying Proxy Statement/Prospectus. Regardless of whether
you plan to attend your 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 your meeting, you may change your
vote, if desired, at that time.
By Order of the Board of Trustees/Directors
/s/ James M. Hennessy
James M. Hennessy, Secretary
February 8, 2000
<PAGE>
TABLE OF CONTENTS
INTRODUCTION................................................................ 1
SUMMARY..................................................................... 2
INVESTMENT OBJECTIVES AND POLICIES.......................................... 5
Comparison of Objectives and Primary Investment Strategies............... 5
Comparison of Portfolio Characteristics.................................. 7
Relative Performance..................................................... 8
Comparison of Risks of Investing in the Funds........................... 9
Comparison of Securities and Investment Techniques....................... 9
COMPARISON OF FEES AND EXPENSES............................................. 12
Operating Expenses....................................................... 12
Annual Fund Operating Expenses........................................... 13
Expense Limitation Arrangements.......................................... 14
Transaction Fees on New Investments...................................... 15
ADDITIONAL INFORMATION ABOUT PILGRIM GSIF AND GOVERNMENT SECURITIES FUND.... 17
INFORMATION ABOUT THE REORGANIZATION........................................ 21
ADDITIONAL INFORMATION ABOUT THE FUNDS...................................... 23
GENERAL INFORMATION ABOUT THE PROXY STATEMENT............................... 25
APPENDIX A.................................................................. A-1
APPENDIX B.................................................................. B-1
APPENDIX C.................................................................. C-1
APPENDIX D.................................................................. D-1
<PAGE>
PROXY STATEMENT/PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS SCHEDULED FOR
MARCH 24, 2000
PILGRIM GOVERNMENT SECURITIES FUND
(formerly Northstar Government Securities Fund)
Relating to the Reorganization into
PILGRIM GOVERNMENT SECURITIES INCOME FUND
(COLLECTIVELY, THE "FUNDS")
INTRODUCTION
This Proxy Statement/Prospectus provides you with information about a
proposed transaction. This transaction involves the transfer of all of the
assets and liabilities of Pilgrim Government Securities Fund (formerly Northstar
Government Securities Fund) ("Government Securities Fund") to Pilgrim Government
Securities Income Fund ("Pilgrim GSIF") in exchange for shares of Pilgrim GSIF
(the "Reorganization"). Government Securities Fund would then distribute to you
your portion of the shares of Pilgrim GSIF it receives in the Reorganization.
The result would be a liquidation of Government Securities Fund. You would
receive shares of the Pilgrim GSIF having an aggregate value equal to the
aggregate value of the shares of Government Securities 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 you, as a shareholder of Government Securities Fund are being asked
to approve a transaction that will result in your holding shares of Pilgrim
GSIF, this Proxy Statement also serves as a Prospectus for Pilgrim GSIF.
This Proxy Statement/Prospectus, which you should retain for future
reference, contains important information about Pilgrim GSIF that you should
know before investing. For a more detailed discussion of the investment
objectives, policies, restrictions and risks of each of the Funds, see the
Prospectus included herewith (the "Pilgrim Prospectus") and the Statement of
Additional Information for Pilgrim Funds dated January 4, 2000, which may be
obtained, without charge, by calling (800) 992-0180. Each of the Funds also
provides periodic reports to its shareholders which highlight certain important
information about the Funds, including investment results and financial
information. The annual report for Pilgrim GSIF dated June 30, 1999, which
covers Classes A, B and C, is included herewith and is incorporated herein by
reference. You may receive a copy of the most recent annual report for either of
the Funds and a copy of any more recent semi-annual report, without charge, by
calling (800) 992-0180.
You may also obtain proxy materials, reports and other information filed by
Pilgrim GSIF from the Securities and Exchange Commission's ("SEC") Public
Reference Room (1-800-SEC-0330) or from the SEC's internet website at
www.sec.gov.
THE SECURITIES AND EXCHANGE COMMISSION 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.
<PAGE>
SUMMARY
You should read this entire Proxy Statement/Prospectus carefully. For
additional information, you should consult the Pilgrim Prospectus and the
Agreement and Plan of Reorganization, which is attached hereto as Appendix A.
THE PROPOSED REORGANIZATION. On November 16, 1999, the Board of Trustees of
Government Securities Fund and the Board of Directors of Pilgrim GSIF each
approved an Agreement and Plan of Reorganization (the "Reorganization
Agreement"). Subject to shareholder approval of both Funds, the Reorganization
Agreement provides for:
* the transfer of all of the assets of Government Securities Fund to
Pilgrim GSIF, in exchange for shares of Pilgrim GSIF;
* the assumption by Pilgrim GSIF of all of the liabilities of Government
Securities Fund;
* the distribution of the Pilgrim GSIF to the shareholders of Government
Securities Fund; and
* complete liquidation of Government Securities Fund (the
"Reorganizaton").
The Reorganization is expected to be effective upon the opening of business
on April 3, 2000, or on a later date as the parties may agree (the "Closing").
As a result of the Reorganization, each shareholder of Class A, Class B, Class C
and Class T shares of Government Securities Fund would become a shareholder of
the same Class of Pilgrim GSIF. Each shareholder would hold, immediately after
the Closing, shares of each Class of Pilgrim GSIF having an aggregate value
equal to the aggregate value of the shares of that same Class of Government
Securities Fund held by that shareholder as of the close of business on the
business day preceding the Closing.
The Reorganization is intended to eliminate duplication of costs and other
inefficiencies arising from having two similar mutual funds within the same
group of funds. Shareholders in Government Securities Fund (as well as those in
Pilgrim GSIF) are expected to benefit from the elimination of this duplication
and from the larger asset base that will result from the Reorganization.
Approval of the Reorganization Agreement requires the affirmative vote
of: (i) a majority of the outstanding shares of Government Securities Fund and
(ii) a majority of the outstanding shares of Pilgrim GSIF.
AFTER CAREFUL CONSIDERATION, THE BOARD OF TRUSTEES OF GOVERNMENT SECURITIES FUND
AND THE BOARD OF DIRECTORS OF PILGRIM GSIF EACH UNANIMOUSLY APPROVED THE
PROPOSED REORGANIZATION. EACH BOARD RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED
REORGANIZATION.
In considering whether to approve the Reorganization, you should note that:
* Government Securities Fund and Pilgrim GSIF have substantially the
same investment objectives and policies. Government Securities Fund
seeks high current income and conservation of principal. Pilgrim GSIF
seeks high current income, consistent with liquidity and preservation
of capital. Each of the Funds primarily invests in securities issued
or guaranteed by the U.S. Government and its agencies or
instrumentalities.
2
<PAGE>
* The proposed Reorganization offers actual or potential reductions in
total operating expenses for shareholders of each of the Funds.
Combining the Funds should lower expenses because of economies of
scale realized from a larger asset base. This chart compares the
current operating expenses, management fees, and distribution and
shareholder service fees of the Funds.
<TABLE>
<CAPTION>
Distribution and Total Net
Management Fees (3) Service (12b-1) Fees (3) Operating Expenses (4)
------------------- -------------------------- --------------------------
Class of Shares All Classes A B C T A B C T
- ------------------- ----------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pilgrim GSIF (1) 0.50% 0.25% 1.00% 1.00% N/A 1.40% 2.15% 2.15% N/A
Government Securities
Fund (2)
* before waiver 0.65% 0.30% 1.00% 1.00% 0.65% 1.35% 2.06% 2.12% 1.69%
* after waiver 0.50% 0.30% 1.00% 1.00% 0.65% 1.20% 1.91% 1.97% 1.54%
</TABLE>
- ----------
(1) Pilgrim Investments limits the expenses of Pilgrim GSIF pursuant to the
terms of the Investment Management Agreement . See "Comparison of Fees and
Expenses - Expense Limitation Arrangements" for more information.
(2) The "after waiver" Operating Expenses and Management Fees for the
Government Securities Fund reflect a voluntary management fee waiver of
0.15%.
(3) Fees are expressed as an annual rate of average daily net assets.
(4) Operating Expenses are expressed as a ratio of expenses to average daily
net assets ("expense ratio") based on the one-year period ending June 30,
1999.
This chart shows an estimate of the likely expenses after the
Reorganization.
<TABLE>
<CAPTION>
Distribution and Total Net
Management Fees Service (12b-1) Fees (3) Operating Expenses (4)
--------------- -------------------------- --------------------------
Class of Shares All Classes A B C T A B C T
- --------------- ----------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Combined Funds
(Pro Forma) 0.50% 0.25% 1.00% 1.00% 0.65% 1.07% 1.82% 1.82% 1.47%
</TABLE>
* An expense limitation arrangement is in place for Pilgrim GSIF, under which
Pilgrim Investments limits the ordinary operating expenses borne by the
Fund. The expense limitation arrangement is described below in the section
"Expense Limitation Arrangements" and under the table "Annual Fund
Operating Expenses." The current expense limitation agreement for Pilgrim
GSIF will terminate only with the termination or amendment of the advisory
contract with Pilgrim Investments.
* The current sales load structure for the Funds is identical.
For further information on fees and expenses, see "Comparison of Fees and
Expenses."
* The Funds have affiliated management. Pilgrim Investments, Inc. ("Pilgrim
Investments"), 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004,
is the Investment Manager to Pilgrim GSIF. Pilgrim Advisors, Inc. ("Pilgrim
Advisors"), (formally Northstar Investment Management Corporation), 40
North Central Avenue, Suite 1200, Phoenix, Arizona 85004, is the investment
manager for Government Securities Fund. Both are affiliated subsidiaries of
the same holding company, ReliaStar Financial Corp. Because these firms
share investment resources, the investment personnel who manage the Funds
currently are the same.
3
<PAGE>
PURCHASE, REDEMPTION, AND EXCHANGE INFORMATION. The purchase, redemption
and exchange provisions and privileges for Government Securities Fund and
Pilgrim GSIF are currently the same. Prior to November 1, 1999, there were
differences in these provisions, including differences in sales loads. As a
result, the contingent deferred sales load structure of the Government
Securities Fund shares held by you prior to November 1, 1999, will apply to the
Pilgrim GSIF shares issued to you in the Reorganization. In addition, you will
receive credit for the period that you held your Government Securities Fund
shares for purposes of calculating any contingent deferred sales charges and
determining conversion rights with regard to Pilgrim GSIF shares you receive in
the Reorganization. Similar to Class B shares of Government Securities Fund,
Class B shares of Pilgrim GSIF will convert to Class A eight years after their
purchase date.
Purchases of shares of Pilgrim GSIF after the Reorganization will be
subject to the sales load structure and conversion characteristics of Pilgrim
GSIF. For additional information on purchase, redemption and exchange procedures
see "Comparison of Fees and Expenses" and "Appendix B - Additional Information
Regarding Pilgrim GSIF."
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION. The Funds expect
that the Reorganization will be considered a tax-free reorganization within the
meaning of section 368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Code"). As such you will not recognize gain or loss as a result of the
Reorganization. See "Information About The Reorganization -- Tax
Considerations."
4
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
COMPARISON OF OBJECTIVES AND PRIMARY INVESTMENT STRATEGIES
The investment objectives, policies and restrictions of the Funds are
substantially similar, although there are certain differences. There can be no
assurance that either Fund will achieve its stated objective.
INVESTMENT OBJECTIVE
Pilgrim GSIF and Government Securities Fund have substantially the same
investment objectives and policies.
* 1
* Pilgrim GSIF seeks high current income, consistent with liquidity and
preservation of capital.
* ** 1 Government Securities Fund seeks high current income and
conservation of principal.
PRIMARY INVESTMENT STRATEGIES
* Both of the Funds primarily invest in securities issued or guaranteed
by the U.S. Government and its agencies or instrumentalities.
PILGRIM GSIF
* Generally, Pilgrim GSIF normally invests at least 70% of its total
assets in securities issued or guaranteed by the U.S. Government and
the following agencies or instrumentalities of the U.S. Government:
the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA"), and the Federal Home Loan
Mortgage Corporation ("FHLMC"). Such securities include direct
obligations of the U.S. Treasury and mortgage-backed securities.
Pilgrim GSIF may fall below the 70% threshold due to changes in the
value of the Pilgrim GSIF's holdings or the sale of securities to meet
redemptions, in which case the Pilgrim GSIF will purchase only U.S.
Government securities until the 70% level is restored.
* The remainder of Pilgrim GSIF's assets may be invested in securities
issued by other agencies and instrumentalities of the U.S. Government
and in instruments collateralized by securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities. The
Pilgrim GSIF's adviser determines the composition of the Pilgrim
GSIF's portfolio on the basis of its judgment of existing market
conditions, such as the general direction of interest rates, trends in
creditworthiness, expected inflation, supply and demand of fixed
income securities, and other factors.
GOVERNMENT SECURITIES FUND
* Under normal conditions, Government Securities Fund holds at least 65%
of its total assets in securities supported by the full faith and
credit of the U.S. government.
* Government Securities Fund will not invest more than 20% of its assets
in securities issued by a single instrumentality or agency not
supported by the full faith and credit of the U.S. government.
5
<PAGE>
OTHER INVESTMENT STRATEGIES
* Pilgrim GSIF may enter into reverse repurchase agreements, dollar roll
transactions or pairing off transactions.
* Pilgrim GSIF does not invest in highly leveraged derivatives, such as
swaps, interest-only or principal-only stripped mortgage-backed
securities, or interest rate futures contracts.
* Government Securities Fund may invest in mortgage-backed, zero coupon
and other securities, including derivatives.
DURATION
* Pilgrim GSIF may invest in securities of any maturity; however, the
Fund is expected to have a dollar-weighted average duration within a
range of 20% above or below that of the Lehman Intermediate Treasury
Index. As of June 30, 1999, the dollar-weighted average duration of
the Lehman Intermediate Treasury Index was 3.06 years.
* Government Securities Fund, depending on interest rates and market
opportunities, invests in U.S. government securities that generally
have short and intermediate terms to maturity. The average duration of
Government Securities Fund will generally be three to four years.
Following the Reorganization and in the ordinary course of business as a
mutual fund, certain holdings of Government Securities Fund that were
transferred to Pilgrim GSIF in connection with the Reorganization may be sold.
Such sales may result in increased transactional costs for Pilgrim GSIF, and the
realization of taxable gains or losses for the Fund.
6
<PAGE>
COMPARISON OF PORTFOLIO CHARACTERISTICS
The following table compares certain characteristics of the portfolios of
the Funds as of June 30, 1999:
<TABLE>
<CAPTION>
Pilgrim GSIF Government Securities Fund
------------ --------------------------
<S> <C> <C>
Net Assets $34,242,820 $98,888,680
Number of Holdings 75 24
Average Credit Quality AAA AAA
Portfolio Turnover Rate
(12 months ended 6/30/99) 58% 40%
As a percentage of net assets:
Treasury bonds, bills and notes 8.5% 0.0%
Mortgage-Related Securities 90.0% 96.8%
U.S. Gov. Securities not backed
by full faith and credit 62.5% 35.9%
Corporate Debt 0.0% 0.0%
Short-term Investments 4.6% 2.2%
Top 10 Holdings GNMA 6.50%, due 2/15/26 12.8% FNMA 6.50%, due 11/01/13 18.6%
(as a % of net assets) FHLMC 7.01%, due 7/11/07 9.5% GNMA 7.00%, due 10/20/28 15.2%
FNMA 6.50%, due 10/01/28 8.4% GNMA 7.00%, due 9/20/28 9.1%
FNMA 6.50%, due 12/01/28 8.3% GNMA 7.00%, due 12/15/28 8.5%
FNMA 7.50%, due 5/01/28 7.4% GNMA 7.50%, due 12/15/28 8.1%
FNMA 10.50%, due 1/20/21 3.1% GNMA 7.50%, due 10/15/28 7.1%
US Treasury Bond 4.875%, 3/31/01 2.9% FHLMC 6.50%, due 9/15/24 5.7%
FNMA 5.64%, due 12/10/08 2.8% FNMA 9.00%, due 6/01/07 4.6%
FNMA 11.25%, due 2/15/16 2.7% FNMA 8.50%, due 11/01/09 4.1%
US Treasury Bond, 5.25%, 2/15/29 2.7% GNMA 7.00%, due 2/15/26 3.8%
</TABLE>
8
<PAGE>
RELATIVE PERFORMANCE
The following table shows, for each calendar year since 1989, the average
annual total return for (a) Class A shares of Pilgrim GSIF, (b) Class A and
Class T shares of Government Securities Fund, as outlined below in footnote 2,
(c) the Lehman Government/Mortgage Index, and (d) the Lehman Intermediate
Treasury Index. Performance of the Funds does not reflect the deduction of sales
loads in the table below. The Lehman Government/Mortgage Index and the Lehman
Intermediate Treasury Index have an inherent performance advantage over the
Funds, since they have no cash in their portfolios, and incur no operating
expenses. An investor cannot invest 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.
Lehman Lehman
Government Government/ Intermediate
Calendar Year/ Securities Mortgage Treasury
Period Ended Pilgrim GSIF Fund (2) Index (3) Index (4)
------------ ------------ -------- --------- ---------
12/31/89 12.92% 11.73% 14.60% 12.69%
12/31/90 8.03% 8.57% 10.73% 9.45%
12/31/91 11.90% 14.73% 15.71% 14.10%
12/31/92 7.46% 9.77% 6.96% 6.95%
12/31/93 4.71% 18.48% 6.84% 8.22%
12/31/94 (3.61)% (9.82)% (1.61)% (1.76)%
12/31/95 14.51% 22.90% 16.80% 14.42%
12/31/96 2.56% 0.57% 5.35% 3.98%
12/31/97 7.85% 7.46% 9.49% 7.69%
12/31/98 5.61% 5.27% 6.98% 8.62%
09/30/99 (1) (0.88)% (1.53)% 1.47% 0.52%
- ----------
(1) Not annualized.
(2) Performance results, for the periods 1989 through 1995, are based upon the
performance of the Class T shares of the Fund and has been revised to
reflect expenses for Class A shares. Performance results, for the periods
1996 through 1999, are based upon the performance of the Class A shares of
the Fund, which commenced operations on June 5, 1995.
(3) The Lehman Government/Mortgage Index is comprised of debt securities issued
by the U.S. Government, its agencies and instrumentalities, as well as
mortgage pass-through instruments issued by FNMA, FHLMC and GNMA.
(4) The Lehman Intermediate Treasury Index is comprised solely of U.S.
Treasuries with maturities of under ten years.
8
<PAGE>
COMPARISON OF RISKS OF INVESTING IN THE FUNDS
Because the Funds share similar investment objectives and policies, the
risks of an investment in the Funds are substantially similar. The principal
risk of an investment in either Fund is fluctuation in the net asset value of
the Fund's shares. Market conditions, investment policies, portfolio management,
and other factors affect such fluctuations.
Both Funds are subject to risks associated with investing in debt
securities, including changes in interest rates, credit risks, prepayment risks,
and risks of using derivatives, as described below.
* The value of each Fund's investments may fall when interest rates
rise. Each of the Funds may be sensitive to interest rates because
they primarily invest in U.S. government securities with short and
intermediate terms to maturity. Debt securities with longer durations
tend to be more sensitive to changes in interest rates, usually making
them more volatile than debt securities with shorter durations.
* Either Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. Generally,
both Funds normally are subject to less credit risks than income funds
that emphasize corporate bonds because both Funds principally invest
in debt securities issued or guaranteed by the U.S. government, its
agencies and government sponsored enterprises. However, obligations of
some U.S. government agencies, such as FNMA and FHLMC, are not backed
by the full faith and credit of the U.S. government. Consequently,
there are somewhat greater credit risks involved with investing in
securities issued by those entities than in securities backed by the
full faith and credit of the U.S. Government.
* Each of the Funds may invest in mortgage related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off
their mortgages sooner than scheduled. If interest rates are falling,
both Funds will be forced to reinvest this money at lower yields.
* Each of the Funds may invest in mortgage-related securities which may
be considered derivatives. These types of derivatives are subject to
the risk of changes in the market price of the security and the risk
of loss due to changes in interest rates. The use of these derivatives
may reduce returns for the Funds.
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. An investment in either of the
Funds is not a deposit of a bank and is not insured by the Federal Deposit
Insurance Corporation or any other government agency.
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. Additionally, obligations of some U.S. Government
agencies, such as FNMA and FHLMC, are not backed by the full faith and credit of
the U.S. Government, and are subject to somewhat greater credit risk than direct
obligations of the U.S. Treasury.
9
<PAGE>
U.S. GOVERNMENT AGENCY MORTGAGE-RELATED SECURITIES. Each Fund may invest in
U.S. Government Agency mortgage-related securities. Like other fixed income
securities, when interest rates rise, the value of these mortgage-backed
securities 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 may
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.
Further, during periods that interest rates are low, prepaid amounts would be
reinvested in low-yielding instruments.
RESTRICTED AND ILLIQUID SECURITIES. Both the Pilgrim GSIF and the
Government Securities Fund may invest up to 15% of their net assets in illiquid
securities, which do not include restricted securities that are readily
marketable. 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 both Funds, 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. Derivative instruments are securities that derive their
value from the performance of an underlying asset, usually take the form of a
contract to buy or sell an asset or commodity either now or in the future, but
mortgage and other asset-backed securities may also be considered derivatives.
Other types of derivatives include options, futures contracts, options on
futures and forward contracts. Derivative instruments may be used for a variety
of reasons, including to enhance return, hedge certain market risks, or provide
a substitute for purchasing or selling particular securities. Derivatives may
provide a cheaper, quicker or more specifically focused way for the Fund to
invest than "traditional" securities would.
Each of the Funds may invest in derivative instruments. Pilgrim GSIF may
invest in U.S. Government agency mortgage-backed securities issued or guaranteed
by the U.S. Government or one of its agencies or instrumentalities. The risks of
these instruments is described above. However, Pilgrim GSIF may not invest in
highly leveraged derivatives, such as swaps, interest-only or principal-only
stripped mortgage-backed securities or interest rate futures contracts.
Derivatives in which Government Securities Fund may invest can be volatile
and involve various types and degrees of risk, depending upon the
characteristics of the particular derivative and the portfolio as a whole.
Derivatives permit a fund to increase or decrease the level of risk, or change
the character of the risk, to which its portfolio is exposed in much the same
way as the fund can increase or decrease the level of risk, or change the
character of the risk, of its portfolio by making investments in specific
securities. See also "Interest Rate Futures" below.
10
<PAGE>
INTEREST RATE FUTURES. Pilgrim GSIF may not invest in futures contracts.
Government Securities Fund may invest in financial futures contracts, including
interest rate futures. An interest rate futures contract obligates the seller of
the contract to deliver, and the purchaser to take delivery of, the U.S.
Government securities called for in the contract at a specified future time and
at a specified price. An option on a financial futures contract gives the
purchaser the right to assume a position in the contract (a long position if the
option is a call and short position if the option is a put) at a specified
exercise price at any time during the period of the option.
FLOATING OR VARIABLE RATE INSTRUMENTS. Both Funds may purchase floating or
variable rate bonds, which normally provide that the holder can demand payment
of the obligation on short notice at par with accrued interest. Floating or
variable rate instruments provide for adjustments in the interest rate at
specified intervals (weekly, monthly, semiannually, etc.).
LENDING PORTFOLIO SECURITIES. To generate additional income, both Funds may
lend portfolio securities in an amount up to 33 1/3% of total assets to
broker-dealers, major banks, or other recognized domestic institutional
borrowers of securities. The borrower at all times during the loan must maintain
with the Fund cash or cash equivalent collateral or provide to the Funds an
irrevocable letter of credit equal in value to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the
borrower pays the Funds any interest paid on such securities, and the Funds may
invest the cash collateral and earn additional income, or it may receive an
agreed-upon amount of interest income from the borrower who has delivered
equivalent collateral or a letter of credit. Loans are subject to termination at
the option of the Funds or the borrower at any time. 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.
BORROWING. Both Funds may borrow money from banks solely for temporary or
emergency purposes. Government Securities Fund may not borrow in an amount
exceeding one-third of the value of its total assets. Pilgrim GSIF may not
borrow in an amount in excess of 10% of the value of its total assets. For
Pilgrim GSIF, no additional investment may be made while any such borrowings are
in excess of 5% of total assets. Leveraging by means of borrowing may exaggerate
the effect of any increase or decrease in the value of portfolio securities or a
Fund's net asset value, and money borrowed will be subject to interest and other
costs (which may include commitment fees and/or the cost of maintaining minimum
average balances) which may or may not exceed the income received from the
securities purchased with borrowed funds.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Pilgrim GSIF may not invest in loan
participations and loan assignments. Government Securities Fund may invest in
loan participations and loan assignments. The secondary market for such
instruments is limited. The limitations on a liquid secondary market may have an
adverse impact on the value of such securities and Government Securities Fund's
ability to dispose of particular assignments or participations when necessary to
meet redemptions of the Fund's shares, to meet the Fund's liquidity needs or
when necessary in response to a specific economic event, such as deterioration
in the creditworthiness of the borrower. The limited secondary market for
assignments and participations also may make it more difficult for Government
Securities Fund to value these securities for purposes of calculating its net
asset value.
Loan participations and assignments are also subject to the credit risk of
nonpayment of scheduled interest or principal payments. Issuers of these
instruments tend to be companies that have either issued debt securities that
are rated lower than investment grade, I.E., rated lower than "Baa" by Moody's
Investors Service or "BBB" by Standard & Poor's, or, if they had issued debt
securities, such debt securities would likely be rated lower than investment
grade. In the event a borrower fails to pay scheduled interest or principal
payments on a loan participation or assignment held by the Fund, that Fund could
experience a reduction in its income and a decline in the market value of the
loan participation or assignment, and may experience a decline in the NAV of the
11
<PAGE>
Fund's shares or the amount of its dividends. Further, the liquidation of the
collateral underlying an assignment (to which the Fund may have certain rights)
may not satisfy the borrower's obligation to the Fund in the event of
non-payment of scheduled interest or principal, and the collateral may not be
readily liquidated.
ZERO COUPON SECURITIES. Pilgrim GSIF may not invest in zero coupon
securities. Government Securities Fund may invest in zero coupon securities,
including zero coupon Treasury securities which consist of Treasury bills or
stripped interest or principal components of U.S. Treasury bonds or notes. Zero
coupon securities are sold at a discount (usually substantial) and redeemed at
face value at their maturity date without interim cash payments of interest or
principal. Because of these features, the market prices of zero coupon
securities are generally more volatile than the market prices of securities that
have a similar maturity but that pay interest periodically. Zero coupon
securities are likely to respond to a greater degree to interest rate changes
than are non-zero coupon securities with similar maturity and credit qualities.
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. It is expected that combining the Funds
will allow shareholders to realize economies of scale. For further information
on the fees and expenses of Pilgrim GSIF, see "Appendix B Additional Information
Regarding Pilgrim Government Securities Income Fund."
OPERATING EXPENSES
The operating expenses of Government Securities Fund, expressed as a ratio
of expenses to average daily net assets ("expense ratio") currently are lower
than those of Pilgrim GSIF.
* After a voluntary management fee waiver by Pilgrim Advisors, the net
expenses for the Class A, Class B and Class C shares of Government
Securities Fund for the year ending June 30, 1999, are lower by 0.20%,
0.24% and 0.18%, respectively, than those of the same classes of
Pilgrim GSIF.
* After a voluntary management fee waiver by Pilgrim Advisors, the
management fee for the Government Securities Fund for the year ending
June 30, 1999 was the same as the management fee for Pilgrim GSIF.
* The fees for distribution and shareholder servicing for Pilgrim GSIF
are the same as Government Securities Fund, with the exception of
Class A which are 0.05% lower for Pilgrim GSIF.
It is expected that combining the Funds will lower operating expenses to a
level cheaper than the operating expenses of either Fund prior to the
Reorganization. For more information, see estimated PRO FORMA expenses in the
table, "Annual Fund Operating Expenses."
EXPENSE LIMITATION
An expense limitation arrangement is in place for Pilgrim GSIF, under which
Pilgrim Investments limits the ordinary operating expenses borne by the Fund.
The expense limitation arrangement is described below in the section "Expense
Limitation Arrangements" and under the table "Annual Fund Operating Expenses."
The current expense limitation agreement for Pilgrim GSIF will terminate only
with the termination or amendment of the advisory contract with Pilgrim
Investments.
12
<PAGE>
EXPENSE TABLE
The current expenses of each Fund and estimated PRO FORMA expenses giving
effect to the proposed Reorganization are shown in the table below. Expenses for
the Funds are based on the operating expenses incurred for the year ending June
30, 1999. PRO FORMA fees show estimated fees of Pilgrim GSIF after giving effect
to the proposed reorganization. PRO FORMA numbers are estimated in good faith
and are hypothetical.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets, shown as a ratio of
expenses to average daily net assets) (1)
Distribution
and
Shareholder
Servicing Total Fund
Management (12b-1) Other Operating
Fees Fees(2) Expenses Expenses(3)
---- ------- -------- -----------
CLASS A
Pilgrim GSIF 0.50% 0.25% 0.65% 1.40%
Government Securities Fund 0.65% 0.30% 0.40% 1.35%
Pro Forma 0.50% 0.25% 0.32% 1.07%
CLASS B
Pilgrim GSIF 0.50% 1.00% 0.65% 2.15%
Government Securities Fund 0.65% 1.00% 0.41% 2.06%
Pro Forma 0.50% 1.00% 0.32% 1.82%
CLASS C
Pilgrim GSIF 0.50% 1.00% 0.65% 2.15%
Government Securities Fund 0.65% 1.00% 0.47% 2.12%
Pro Forma 0.50% 1.00% 0.32% 1.82%
CLASS T
Pilgrim GSIF N/A N/A N/A N/A
Government Securities Fund 0.65% 0.65% 0.39% 1.69%
Pro Forma 0.50% 0.65% 0.32% 1.47%
- ----------
(1) Pilgrim GSIF's fiscal year ends on June 30, while Government Securities
Fund's fiscal year ends on December 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 12 months ended June 30, 1999.
(2) 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) Pursuant to the terms of the Investment Management Agreement, Pilgrim
Investments will reimburse Pilgrim GSIF to the extent that total Fund
operating expenses, excluding interest, taxes, brokerage commissions,
extraordinary expenses, and distribution fees in excess of 0.25%, exceed
1.50% of the Fund's average daily net asset value on the first $40 million
in net assets and 1.00% of average daily net assets in excess of $40
million. This reimbursement policy cannot be changed unless the Investment
Management Agreement is amended, which would require shareholder approval.
Figures for the Government Securities Fund are before a voluntary
management fee waiver by Pilgrim Advisors of 0.15%. After that waiver, the
management fee was 0.50% and the net fund expenses were 1.20% for Class A,
1.91% for Class B, 1.97% for Class C and 1.54% for Class T.
13
<PAGE>
EXAMPLES
The examples are intended to help you compare the cost of investing in the
Funds and in the combined Funds on a PRO FORMA basis. The examples assume that
you invest $10,000 in each Fund and in the surviving fund after the
Reorganization for the time periods indicated. For Government Securities Fund,
expenses prior to a voluntary fee waiver by Pilgrim Advisors are presented. The
examples also assume 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. Based on the above
assumptions, you would pay the following expenses if you redeem your shares at
the end of such period shown; your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Pro Forma:
Pilgrim GSIF Government Securities Fund 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 $611 $897 $1,204 $2,075 $606 $882 $1,179 $2,022 $579 $799 $1,037 $1,719
Class B 718 973 1,354 2,292 709 946 1,308 2,208* 685 873 1,185 1,940*
Class C 318 673 1,154 2,483 315 664 1,139 2,452 285 573 985 2,137
Class T N/A N/A N/A N/A 572 733 918 1,908* 550 665 803 1,649*
</TABLE>
- ----------
* The ten year calculations for Class B and Class T shares assume conversion
of the Class B and Class T shares to Class A shares at the end of the
eighth year following the date of purchase.
** Estimated.
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
Pro Forma:
Pilgrim GSIF Government Securities Fund 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 $611 $897 $1,204 $2,075 $606 $882 $1,179 $2,022 $579 $799 $1,037 $1,719
Class B 218 673 1,154 2,292 209 646 1,108 2,208* 185 573 985 1,940*
Class C 218 673 1,154 2,483 215 664 1,139 2,452 185 573 985 2,137
Class T N/A N/A N/A N/A 172 533 918 1,908* 150 465 803 1,649*
</TABLE>
- ----------
* The ten year calculations for Class B and Class T shares assume conversion
of the Class B and Class T shares to Class A shares at the end of the
eighth year following the date of purchase.
** Estimated.
EXPENSE LIMITATION ARRANGEMENTS
Pursuant to the terms of the Investment Management Agreement, Pilgrim
Investments is required to reimburse the Pilgrim GSIF to the extent that total
Fund operating expenses, excluding interest, taxes, brokerage commissions,
extraordinary expenses, and distribution fees in excess of 0.25%, exceed 1.50%
of the Fund's average daily net asset value on the first $40 million in net
assets and 1.00% of average daily net assets in excess of $40 million. This
reimbursement policy cannot be changed unless the Investment Management
Agreement is amended, which would require shareholder approval.
14
<PAGE>
Pilgrim Advisors has waived a portion of its management fee for the
Government Securities Fund. After the waiver of 0.15%, the management fee would
be 0.50% and the total fund operating expenses would be 1.20% for Class A, 1.91%
for Class B, 1.97% for Class C and 1.54% for Class T. This fee waiver is
voluntary and is not a contractual commitment, and can be terminated by Pilgrim
Advisors at any time.
GENERAL INFORMATION
Class A, Class B, Class C and Class T shares of Pilgrim GSIF issued to a
shareholder in connection with the Reorganization will be subject to the same
contingent deferred sales charge, if any, applicable to the corresponding shares
of Government Securities Fund held by that shareholder immediately prior to the
Reorganization.
In addition, the period that the shareholder held shares of Government
Securities Fund will be included in the holding period of Pilgrim GSIF shares
for purposes of calculating any contingent deferred sales charge. Similarly,
Class B and Class T shares of Pilgrim GSIF issued to a shareholder in connection
with the Reorganization that were purchased prior to November 1, 1999, will
convert to Class A shares eight years after the date that the corresponding
Class B or Class T shares of Government Securities Fund were purchased by the
shareholder. Purchases of shares of Pilgrim GSIF after the Reorganization will
be subject to the sales load structure described in the table below for Pilgrim
GSIF. This is the same sales load structure that is currently in effect for
Government Securities Fund.
TRANSACTION FEES ON NEW INVESTMENTS
(fees paid directly from your investment)
<TABLE>
<CAPTION>
Class A Class B Class C Class T
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) 4.75%(1) None None None
Maximum deferred sales charge (load)
(as a percentage of the lower of original
purchase price or redemption proceeds) None (2) 5.00%(3) 1.00%(4) 4.00%(5)
</TABLE>
Neither Pilgrim GSIF nor Government Securities 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.
(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.
(3) The fee has scheduled reductions after the first year. See "Class B Shares:
Deferred Sales Charge Alternative" in Appendix B and "Deferred Sales
Charges" in the Pilgrim Prospectus.
(4) Imposed upon redemptions within 1 year from purchase.
(5) Imposed upon redemptions within 4 years from purchase.
15
<PAGE>
SPECIAL RULES FOR SHARES OF THE GOVERNMENT SECURITIES FUND PURCHASED PRIOR TO
NOVEMBER 1, 1999
Prior November 1, 1999, the contingent deferred sales charge on purchases
of Class A shares of Government Securities Fund in excess of $1 million was
different than the contingent deferred sales charge on similar purchases of
Pilgrim GSIF. Shareholders of Government Securities Fund that purchased Class A
shares subject to a contingent deferred sales charge prior to November 1, 1999
will continue to be subject to the contingent deferred sales charge in place
when those shares were purchased. The contingent deferred sales charge on such
purchases before and after November 1, 1999 were as follows:
Time Period During
CDSC Which CDSC Applies
---------------------- -------------------------
11/01/1999 Before 11/01/1999 Before
and After 11/01/1999 and After 11/01/1999
--------- ---------- --------- ----------
CDSC on Purchases of:
$1,000,000 to $2,499,999 1.00% 1.00% 24 Months 18 Months
$2,500,000 to $4,999,999 0.50% 0.50% 12 Months 18 Months
$5,000,000 and over 0.25% 0.25% 12 Months 18 Months
In addition, prior to November 1, 1999, the contingent deferred sales
charge on purchases of Class B shares of Government Securities Fund was
different than the contingent deferred sales charge on similar purchases of
Pilgrim GSIF. Shareholders of Government Securities Fund that purchased Class B
shares subject to a contingent deferred sales charge prior to November 1, 1999
will continue to be subject to the contingent deferred sales charge in place
when those shares were purchased. The contingent deferred sales charge on such
purchases before and after November 1, 1999 were as follows:
CDSC On Shares Being Sold
-------------------------
11/01/1999 Before
Years After Purchase and After 11/01/1999
-------------------- --------- ----------
1st Year 5% 5%
2nd Year 4% 4%
3rd year 3% 3%
4th Year 3% 2%
5th Year 2% 2%
6th Year 1% --
After 6th Year -- --
16
<PAGE>
ADDITIONAL INFORMATION ABOUT PILGRIM GSIF
AND GOVERNMENT SECURITIES FUND
INVESTMENT PERSONNEL
Robert K. Kinsey, Vice President of Pilgrim Investments, has served as
Senior Portfolio Manager of Pilgrim GSIF since May 24, 1999. Additionally, he
works with Pilgrim Advisors, formerly Northstar Investment Management
Corporation, and has had primary responsibility for the day-to-day management of
the Government Securities Fund since November 1, 1999. Prior to joining Pilgrim
Investments, Mr. Kinsey was a Vice President and Fixed Income Portfolio Manager
for Federated Investors from January 1995 to March 1999. From July 1992 to
January 1995, Mr. Kinsey was a Principal and Portfolio Manager for Harris
Investment Management.
PERFORMANCE OF THE FUNDS
The bar charts and tables shown below provide an indication of the risks of
investing in the Funds by showing (on a calendar year basis) changes in each
Fund's annual total return from year to year and by showing (on a calendar year
basis) how each Fund's average annual returns for one year, five years and ten
years (or, as applicable, since inception) compare to those of three broad-based
securities market indices the Lehman Brothers Government/Mortgage Index, the
Lehman Brothers Intermediate Treasury Index and the Lehman Brothers Intermediate
U.S. Government Index. The Funds' past performance is not necessarily an
indication of how the Fund will perform in the future.
The information in the bar chart below is based on the performance of the
Class A shares of Pilgrim GSIF, although the bar chart does not reflect the
deduction of the sales load on Class A shares. If the bar chart included the
sales load, returns would be less than those shown.
PILGRIM GSIF
CALENDAR YEAR-BY-YEAR RETURNS*
1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
12.92% 8.03% 11.90% 7.46% 4.71% -3.61% 14.51% 2.56% 7.85%
- ----------
* During the period shown in the chart, Pilgrim GSIF's best quarterly
performance was 7.76% for the quarter ended June 30, 1989, and Pilgrim
GSIF's worst quarterly performance was - 2.66% for the quarter ended March
31, 1994. For the period January 1, 1999 through September 30, 1999, the
total return of Pilgrim GSIF was - 0.88%.
18
<PAGE>
The information in the bar chart below is based on the performance of the
Class A and Class T shares of Government Securities Fund, although the bar chart
does not reflect the deduction of the sales load on the shares. If the bar chart
included the sales load, returns would be less than those shown.
GOVERNMENT SECURITIES FUND
CALENDAR YEAR-BY-YEAR RETURNS*
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
11.73% 8.57% 14.73% 9.77% 18.48% -9.82% 22.90% 0.57% 7.46% 5.27%
- ----------
* Performance for the periods 1989 through 1995 are based upon the
performance of the Class T shares of the Fund and have been revised to
reflect expenses for Class A shares. Performance for the periods 1996
through 1998 are based upon the performance of the Class A shares of the
Fund, which commenced operations on June 5, 1995. During the period shown
in the chart, Government Securities Fund's best quarterly performance was
8.51% for the quarter ended December 31, 1995, and Government Securities
Fund's worst quarterly performance was - 8.12% for the quarter ended March
31, 1994. For the period January 1, 1999 through September 30, 1999, the
total return of Government Securities Fund was - 1.53%.
19
<PAGE>
The tables below show the average annual total returns of the Funds if you
average out actual performance over various lengths of time, compared to two
unmanaged indices. The indices have an inherent performance advantage over the
Funds since they have no cash in their portfolios, impose no sales charges and
incur no operating expenses. An investor cannot invest directly in an index.
The performance reflected in the table below for Pilgrim GSIF assumes the
deduction of the maximum sales charge in all cases.
AVERAGE ANNUAL TOTAL RETURNS OF PILGRIM GSIF
for the periods ended December 31, 1998 (1)
Since Inception of
Class B
1 Year 5 Years 10 Years (6) (7/17/95)
------ ------- ------------ ---------
Class A (2) 0.63% 4.20% 6.56% --
Class B (3) -0.15% -- -- 4.42%
Lehman Government/
Mortgage Index (4) 8.62% 6.45% 8.34% 7.20%
Lehman Intermediate
Treasury Index (5) 6.98% 5.98% 7.38% 7.24%
- ----------
(1) Class C shares of the Pilgrim GSIF were not offered during the period ended
December 31, 1998.
(2) Reflects deduction of sales charge of 4.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3% for the 1 year and
since inception returns, respectively.
(4) The Lehman Government/Mortgage Index is comprised of debt securities issued
by the U.S. Government, its agencies and instrumentalities, as well as
mortgage pass-through instruments issued by FNMA, FHLMC and GNMA.
(5) The Lehman Intermediate Treasury Index is comprised solely of U.S.
Treasuries with maturities of under ten years. Information on the Lehman
Intermediate Treasury Index is presented because effective May 24, 1999,
Pilgrim GSIF seeks an average portfolio duration within +/- 20% of the
duration of that index. Previously, Pilgrim GSIF's average portfolio
maturity was generally longer.
(6) Pilgrim GSIF earned income and realized capital gains as a result of
entering into reverse repurchase agreements during the six-month period
from July to December 1992 that caused the Fund to exceed its 10%
investment restriction on borrowing. Therefore, Pilgrim GSIF's performance
was higher than it would have been had it adhered to its borrowing
restriction.
20
<PAGE>
The performance reflected in the table below for Government Securities Fund
assumes the deduction of the maximum sales charge in all cases.
AVERAGE ANNUAL TOTAL RETURNS OF GOVERNMENT SECURITIES FUND
for the periods ended December 31, 1998
Since
Inception of
Class A, B,
1 Year 5 Years 10 Years and C (6/5/95)
------ ------- -------- --------------
Class A (1) 0.22% -- -- 5.11%
Class B (2) -0.44% -- -- 5.36%
Class C (3) 3.37% -- -- 5.78%
Class T (4) 0.90% 4.59% 8.52% --
Lehman Intermediate
U.S. Government Index (5) 8.49% 6.45% 8.34% 6.99%
- ----------
(1) Reflects deduction of sales charge of 4.75%.
(2) Reflects deduction of deferred sales charge of 5% and 3% for the 1 year and
since inception returns, respectively.
(3) Reflects deduction of deferred sales charge of 1% for the 1 year return.
(4) Reflects deduction of deferred sales charge of 4% for the 1 year return.
(5) The Lehman Intermediate U.S. Government Index measures the performance of
U.S. Treasury bonds and U.S. Government agency bonds.
The table below shows the performance of Pilgrim GSIF if sales charges are
not reflected.
PILGRIM GSIF AVERAGE ANNUAL TOTAL RETURNS
for the periods ended December 31, 1998 (1)
Since Inception
of Class B
1 Year 5 Years 10 Years (2) (7/17/95)
------ ------- ------------ ---------
Class A 5.61% 5.22% 7.07% --
Class B 4.82% -- -- 5.19%
- ----------
(1) Class C shares of the Fund were not offered during the period ended
December 31, 1998.
(2) Pilgrim GSIF earned income and realized capital gains as a result of
entering into reverse repurchase agreements during the six-month period
from July to December 1992 that caused the Fund to exceed its 10%
investment restriction on borrowing. Therefore, Pilgrim GSIF's performance
was higher than it would have been had it adhered to its borrowing
restriction.
The table below shows the performance of Government Securities Fund if
sales charges are not reflected.
GOVERNMENT SECURITIES FUND AVERAGE ANNUAL TOTAL RETURNS
for the periods ended December 31, 1998
Since Inception
of Class A, B,
1 Year 5 Years 10 Years and C (6/5/95)
------ ------- -------- --------------
Class A 5.27% -- -- 6.54%
Class B 4.49% -- -- 5.84%
Class C 4.35% -- -- 5.78%
Class T 4.84% 4.59% 8.52% --
Additional information about Pilgrim GSIF is included in Appendix B to this
Proxy/Prospectus. Additional information about Government Securities Fund is
included in Pilgrim Prospectus dated January 4, 2000.
21
<PAGE>
INFORMATION ABOUT THE REORGANIZATION
THE REORGANIZATION AGREEMENT
The Reorganization Agreement provides for the transfer of all of the assets
and liabilities of Government Securities Fund to Pilgrim GSIF in exchange for
shares in Pilgrim GSIF. Government Securities Fund will distribute the shares of
Pilgrim GSIF received in the exchange to the shareholders of Government
Securities Fund and then Government Securities Fund will be liquidated.
After the Reorganization, each shareholder of Government Securities Fund
will own shares in Pilgrim GSIF having an aggregate value equal to the aggregate
value of each respective class of shares of Pilgrim GSIF held by that
shareholder as of the close of business on the business day preceding the
Closing. Shareholders of Class A, B, C or T shares of Government Securities Fund
will receive shares of the corresponding Class of Pilgrim GSIF. In the interest
of economy and convenience, shares of Pilgrim GSIF generally will not be
represented by physical certificates.
Until the Closing, shareholders of Government Securities Fund will continue
to be able to redeem their shares. Redemption requests received after the
Closing will be treated as requests received by the Pilgrim GSIF 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 each of the
Funds. The Reorganization Agreement also requires that the Funds take, or cause
to be taken, all action, and do or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective the transactions
contemplated by Reorganization Agreement. The Reorganization Agreement may be
terminated by mutual agreement of the parties or on certain other grounds. For a
complete description of the terms and conditions of the Reorganization, see the
Reorganization Agreement at Appendix A.
REASONS FOR THE REORGANIZATION
On October 29, 1999, the parent corporation of Pilgrim Advisors, formerly
Northstar Investment Management Corporation, acquired Pilgrim Capital
Corporation. Pilgrim Capital Corporation was the parent to Pilgrim Investments
investment manager to a group of funds that are called the Pilgrim Funds. As a
result of that transaction, Pilgrim Investments and Pilgrim Advisors are now
affiliated subsidiaries of the same holding company. Additionally, each
Northstar Fund changed its name so that it is now called "Pilgrim." Many of the
mutual funds advised by Pilgrim Advisors and Pilgrim Investments share similar
investment objectives, strategies and risks. Because Pilgrim GSIF may invest in
substantially the same types of securities as Government Securities Fund, the
two Funds would be duplicative in the same group of funds. This could impede the
ability of one or both of the Funds to attract sufficient assets in the future
to enjoy reduced expenses per share from economies of scale. It was determined
that the Funds should be reorganized to realize economic efficiencies that would
benefit the shareholders of both funds by spreading costs across a larger,
combined asset base.
The proposed Reorganization was presented to the Board of Trustees of
Government Securities Fund for consideration and approval at a meeting on
November 16, 1999, and to the Board of Directors of Pilgrim GSIF for
consideration and approval at a meeting on November 16, 1999. For the reasons
discussed below, the Trustees, including all of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) of
Government Securities Fund, determined that the interests of the shareholders of
Government Securities Fund will not be diluted as a result of the proposed
Reorganization, and that the proposed Reorganization is in the best interests of
Government Securities Fund and its shareholders. Similarly, the Directors,
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including all of the Directors who are not "interested persons" (as defined in
the Investment Company Act of 1940) of Pilgrim GSIF, determined that the
interests of the shareholders of Pilgrim GSIF will not be diluted as a result of
the proposed Reorganization, and that the proposed Reorganization is in the best
interests of Pilgrim GSIF and its shareholders.
The Reorganization will allow Government Securities Fund's shareholders to
continue to participate in a professionally-managed portfolio which consists
primarily of securities issued or guaranteed by the U.S. Government or its
agencies and instrumentalities. As Class A, Class B, Class C and Class T
shareholders of Pilgrim GSIF, these shareholders will continue to be able to
exchange into other mutual funds in the larger Pilgrim Funds that offer the same
class of shares in which such shareholder is currently invested. A list of the
current Pilgrim Funds, and their available classes, is attached as Appendix C.
BOARD CONSIDERATION
The Board of Trustees of Government Securities Fund and the Board of
Directors of Pilgrim GSIF, in recommending the proposed transaction, considered
a number of factors, including the following:
1. expense ratios and information regarding fees and expenses of
Government Securities Fund and Pilgrim GSIF, including the expense
limitation arrangements offered by Pilgrim Investments;
2. estimates that show that combining the Funds would result in lower
expense ratios because of the economies of scale;
3. elimination of duplication of costs, market confusion and
inefficiencies of having two similar funds;
4. shareholders who purchased shares of Government Securities Fund prior
to November 1, 1999 would retain the sales charge structure in place
prior to that date;
5. the Reorganization would not dilute the interests of Government
Securities Fund's or Pilgrim GSIF's current shareholders;
6. the relative investment performance and risks of Pilgrim GSIF as
compared to Government Securities Fund;
7. the similarity of Pilgrim GSIF's investment objectives, policies and
restrictions with those of Government Securities Fund and the fact
that the Funds are duplicative within the overall group of funds;
8. the tax-free nature of the Reorganization to Government Securities
Fund and their shareholders.
THE TRUSTEES OF GOVERNMENT SECURITIES FUND AND THE BOARD OF DIRECTORS OF PILGRIM
GSIF RECOMMEND THAT SHAREHOLDERS OF GOVERNMENT SECURITIES FUND AND PILGRIM GSIF,
RESPECTIVELY, APPROVE THE REORGANIZATION.
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. Accordingly, pursuant to this treatment, neither Government
Securities Fund nor its shareholders nor Pilgrim GSIF 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.
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Immediately prior to the Reorganization, Government Securities Fund will
pay a dividend or dividends which, together with all previous dividends, will
have the effect of distributing to its shareholders all of Government Securities
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 the
Government Securities Fund's shareholders.
As of December 31, 1999, Government Securities Fund had accumulated capital
loss carryforwards in the amount of approximately $25,431,865. As of June 30,
1999, Pilgrim GSIF had accumulated capital loss carryforwards in the amount of
$6,224,461. After the Reorganization, these Pilgrim GSIF losses will be
available to Pilgrim GSIF to offset its future capital gains, although the
amount of these losses which may offset Pilgrim GSIF's capital gains in any
given year may be limited. As a result of this limitation, it is possible that
Pilgrim GSIF may not be able to use its losses as rapidly as it might have had
the Reorganization not occurred, and part of these losses may not be useable at
all. The ability of Pilgrim GSIF 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 the
pre-reorganization shareholders of Pilgrim GSIF. After the Reorganization,
however, these benefits will inure to the benefit of all post-reorganization
shareholders of Pilgrim GSIF.
EXPENSES OF THE REORGANIZATION
The Funds will bear the expenses relating to the proposed Reorganization,
including but not limited to the costs of the proxy solicitation, which will be
allocated ratably on the basis of their relative net asset values immediately
before Closing.
ADDITIONAL INFORMATION ABOUT THE FUNDS
FORM OF ORGANIZATION
Pilgrim GSIF is the only series of Pilgrim Government Securities Income
Fund, Inc., a California corporation. Government Securities Fund is the only
series of Pilgrim Government Securities Fund, a Massachusetts business trust.
Pilgrim Government Securities Income Fund, Inc. and Pilgrim Government
Securities Fund are each governed by a Board of Directors or Trustees, as
applicable. Government Securities Fund has twelve Trustees and Pilgrim GSIF has
thirteen Directors, which include the twelve members of the Board of Government
Securities Fund.
DISTRIBUTOR
Pilgrim Securities, Inc. (the "Distributor"), whose address is 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004, is the principal distributor
for Pilgrim GSIF and Government Securities Fund. Formerly, Northstar
Distributors, Inc. served as distributor for Government Securities Fund.
However, on November 16, 1999, Northstar Distributors, Inc. merged with the
Distributor.
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DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund pays dividends from net investment income and net capital gains,
if any, on a monthly basis. For each Fund, dividends and distributions are
determined on a class basis. Dividends and distributions of Pilgrim GSIF 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 Government Securities Fund's
shareholders, then as soon as practicable before the Closing, Government
Securities 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
Government Securities Fund and Pilgrim GSIF as of June 30, 1999 and on a PRO
FORMA basis as of June 30, 1999 giving effect to the Reorganization:
Net Asset Value Shares
Net Assets Per Share Outstanding
---------- --------- -----------
PILGRIM GSIF
Class A $21,059,544 $12.35 1,705,530
Class B $12,425,538 $12.30 1,009,878
Class C $ 6,943 $12.43 558
Class T N/A N/A N/A
GOVERNMENT SECURITIES FUND
Class A $28,130,539 $ 8.83 3,184,230
Class B $27,274,295 $ 8.86 3,079,559
Class C $ 2,465,476 $ 8.84 278,980
Class T $41,018,370 $ 8.85 4,634,517
PRO FORMA - PILGRIM GSIF INCLUDING GOVERNMENT SECURITIES FUND
Class A $49,190,083 $12.35 3,983,003
Class B $39,699,833 $12.30 3,227,629
Class C $ 2,472,419 $12.43 198,907
Class T $41,018,370 $12.35 3,321,326
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GENERAL INFORMATION ABOUT THE PROXY STATEMENT
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 February 8, 2000.
Shareholders of Government Securities Fund and Pilgrim GSIF 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 Advisors, Pilgrim Investments and its affiliates, without
additional compensation, may solicit proxies in person or by telephone,
telegraph, facsimile, or oral communication. The Funds have retained Shareholder
Communications Corporation, a professional proxy solicitation firm, to assist
with any necessary solicitation of proxies. Shareholders of Government
Securities Fund and Pilgrim GSIF may receive a telephone call from the
professional proxy solicitation firm asking the shareholder to vote.
A shareholder may revoke the accompanying proxy at any time prior to its
use by filing with Government Securities Fund or Pilgrim GSIF, as applicable, a
written revocation or duly executed proxy bearing a later date. In addition, any
shareholder who attends the Meeting of Government Securities Fund or Pilgrim
GSIF, as applicable, 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 Government Securities Fund or the
Board of Pilgrim GSIF that may be presented at their respective Meeting.
VOTING RIGHTS
Shares of Pilgrim GSIF entitle their holders to one vote per share as to
any matter on which the holder is entitled to vote. Shares of the Government
Securities Fund entitle their holders to one vote per share as to any matter on
which the holder is entitled to vote and each fractional share shall be entitled
to a proportionate fractional vote. Shares have noncumulative voting rights and
no preemptive or subscription rights.
Shareholders of each of the Funds at the close of business on January 24,
2000 (the "Record Date") will be entitled to be present and give voting
instructions for the Funds at their respective Meetings with respect to their
shares owned as of that Record Date. As of the Record Date, 10,245,686 shares of
Government Securities Fund were outstanding and entitled to vote and 2,662,350
shares of Pilgrim GSIF were outstanding and entitled to vote.
Approval of the Reorganization requires the affirmative vote of a majority
of the outstanding shares of each of the Funds.
Each Fund must have a quorum to conduct its business at the Special
Meeting. The holders of a majority of outstanding shares present in person or by
proxy shall constitute a quorum. In the absence of a quorum, a majority of
outstanding shares of either Fund entitled to vote, in person or by proxy, may
adjourn the meeting from time to time until a quorum shall be present. An
adjournment of the Special Meeting for one of the Funds shall not prevent the
other Fund from holding its Special Meeting.
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Shareholders of Pilgrim GSIF may vote part of the shares in favor of the
proposal and refrain from voting the remaining shares or vote them against the
proposal, but if the shareholder fails to specify the number of shares which the
shareholder is voting affirmatively it will be conclusively presumed that the
shareholder's approving vote is with respect to total shares that the
shareholder is entitled to vote.
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 Meeting for purposes of determining a quorum. However, abstentions and
broker non-votes will not be deemed represented at the 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. Prior
to the Meeting, the Funds expect that broker-dealer firms holding their shares
of the Funds in "street name" for their customers will request voting
instructions from their customers and beneficial owners.
To the knowledge of Government Securities Fund, as of December 1, 1999, no
current Trustee of Government Securities Fund owns 1% or more of the outstanding
shares of the Fund and the officers and Trustees of Government Securities Fund
own, as a group, less than 1% of the shares of the Fund.
To the knowledge of Pilgrim GSIF, as of December 1, 1999, no current
Director of Pilgrim GSIF owns 1% or more of the outstanding shares of the Fund
and the officers and Directors of Pilgrim GSIF own, as a group, less than 1% of
the shares of the Fund.
Appendix D hereto lists the persons that, as of November 22, 1999, owned
beneficially or of record 5% or more of the outstanding shares of any Class of
Government Securities Fund or Pilgrim GSIF.
OTHER MATTERS TO COME BEFORE THE SPECIAL MEETING
The Funds do not know of any matters to be presented at the Meetings other
than those described in this Proxy Statement/Prospectus. If other business
should properly come before the Meetings, the proxy holders will vote thereon in
accordance with their best judgment.
SHAREHOLDER PROPOSALS
The Funds are not required to hold regular annual meetings and, in order to
minimize their costs, do not intend to hold meetings of shareholders unless so
required by applicable law, regulation, regulatory policy or if otherwise deemed
advisable by the Funds' management. Therefore it is not practicable to specify a
date by which shareholder proposals must be received in order to be incorporated
in an upcoming proxy statement for an annual meeting.
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REPORTS TO SHAREHOLDERS
Pilgrim Advisors will furnish, without charge, a copy of the most recent
Annual Report regarding Government Securities Fund 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 at (800) 992-0180.
Pilgrim Investments will furnish, without charge, a copy of the most recent
Annual Report regarding Pilgrim GSIF 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 at (800) 992-0180.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETINGS MAY BE ASSURED, PROMPT
EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A SELF-ADDRESSED,
POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
/s/ James M. Hennessy
James M. Hennessy, Secretary
February 8, 2000
40 North Central Avenue
Phoenix, Arizona 85004
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 16th day of November, 1999, by and between Pilgrim Government Securities
Income Fund, Inc. (the "Acquiring Fund"), a California corporation with its
principal place of business at 40 North Central Avenue, Suite 1200, Phoenix,
Arizona 85004 and Pilgrim Government Securities Fund (the "Acquired Fund"), a
Massachusetts business trust with its principal place of business at 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for Class A, Class B,
Class C and Class T voting shares of common stock (no par value per share) of
the Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the
Acquiring Fund of all liabilities of the Acquired Fund, and the distribution of
the Acquiring Fund Shares to the shareholders of the Acquired Fund in complete
liquidation of the Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are open-end, registered
investment companies of the management type and the Acquired Fund owns
securities which generally are assets of the character in which the Acquiring
Fund is permitted to invest;
WHEREAS, the Directors of the Acquiring Fund have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the Acquiring Fund and its shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not be
diluted as a result of this transaction; and
WHEREAS, the Trustees of the Acquired Fund, have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the Acquired Fund and its shareholders and that the
interests of the existing shareholders of the Acquired Fund would not be diluted
as a result of this transaction;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1 Subject to the requisite approval of the Acquired Fund and the
Acquiring Fund shareholders and the other terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Acquired Fund agrees to transfer all of the Acquired Fund's assets, as set forth
in paragraph 1.2, to the Acquiring Fund, and the Acquiring Fund agrees in
exchange therefor: (i) to deliver to the Acquired Fund the number of full and
fractional Class A, Class B, Class C and Class T Acquiring Fund Shares
determined by dividing the value of the Acquired Fund's net assets with respect
to each class, computed in the manner and as of the time and date set forth in
paragraph 2.1, by the net asset value of one Acquiring Fund Share of the same
class, computed in the manner and as of the time and date set forth in paragraph
2.2; and (ii) to assume all liabilities of the Acquired Fund. Such transactions
shall take place at the closing provided for in paragraph 3.1 (the "Closing").
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1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all assets and property, including, without limitation, all
cash, securities, commodities and futures interests and dividends or interests
receivable that are owned by the Acquired Fund and any deferred or prepaid
expenses shown as an asset on the books of the Acquired Fund on the closing date
provided for in paragraph 3.1 (the "Closing Date").
1.3 The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund shall
also assume all of the liabilities of the Acquired Fund, whether accrued or
contingent, known or unknown, existing at the Valuation Date. On or as soon as
practicable prior to the Closing Date, the Acquired Fund will declare and pay to
its shareholders of record one or more dividends and/or other distributions so
that it will have distributed substantially all (and in no event less than 98%)
of its investment company taxable income (computed without regard to any
deduction for dividends paid) and realized net capital gain, if any, for the
current taxable year through the Closing Date.
1.4 Immediately after the transfer of assets provided for in paragraph 1.1,
the Acquired Fund will distribute to the Acquired Fund's shareholders of record
with respect to each class of its shares, determined as of immediately after the
close of business on the Closing Date (the "Acquired Fund Shareholders"), on a
pro rata basis within that class, the Acquiring Fund Shares of the same class
received by the Acquired Fund pursuant to paragraph 1.1, and will completely
liquidate. Such distribution and liquidation will be accomplished, with respect
to each class of the Acquired Fund's shares, by the transfer of the Acquiring
Fund Shares then credited to the account of the Acquired Fund on the books of
the Acquiring Fund to open accounts on the share records of the Acquiring Fund
in the names of the Acquired Fund Shareholders. The aggregate net asset value of
Class A, Class B, Class C and Class T Acquiring Fund Shares to be so credited to
Class A, Class B, Class C and Class T 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 on the Closing Date.
All issued and outstanding shares of the Acquired Fund will simultaneously be
canceled on the books of the Acquired Fund, although share certificates
representing interests in Class A, Class B, Class C and Class T shares of the
Acquired Fund will represent a number of the same class of Acquiring Fund Shares
after the Closing Date, as determined in accordance with Section 2.3. The
Acquiring Fund shall not issue certificates representing the Class A, Class B,
Class C and Class T Acquiring Fund Shares in connection with such exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. 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, but not
limited to, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
2. VALUATION
2.1 The value of the Acquired Fund's assets to be acquired by the Acquiring
Fund hereunder shall be the value of such assets computed as of immediately
after the close of business of the New York Stock Exchange and after the
declaration of any dividends on the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Acquiring Fund's Articles of Incorporation and then-current
prospectus or statement of additional information, and valuation procedures
established by the Acquiring Fund's Board of Directors.
2.2 The net asset value of a Class A, Class B, Class C and Class T
Acquiring Fund Share shall be the net asset value per share computed with
respect to that class as of immediately after the close of business of the New
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York Stock Exchange and after the declaration of any dividends on the Valuation
Date, using the valuation procedures set forth in the Acquiring Fund's Articles
of Incorporation and then-current prospectus or statement of additional
information and valuation procedures established by the Acquiring Fund's Board
of Directors.
2.3 The number of the Class A, Class B, Class C and Class T Acquiring Fund
Shares to be issued (including fractional shares, if any) in exchange for the
Acquired Fund's assets shall be determined with respect to each such class by
dividing the value of the net assets with respect to the Class A, Class B, Class
C and Class T shares of the Acquired Fund, as the case may be, determined using
the same valuation procedures referred to in paragraph 2.1, by the net asset
value of an Acquiring Fund Share, determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made by the Acquiring Fund's
designated record keeping agent.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be April 1, 2000, or such other date as the
parties may agree to in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of immediately after the close of
business on the Closing Date unless otherwise agreed to by the parties. The
close of business on the Closing Date shall be as of 4:00 p.m., Eastern Time.
The Closing shall be held at the offices of the Acquiring Fund or at such other
time and/or place as the parties may agree.
3.2 The Acquiring Company shall direct State Street Bank and Trust Company,
as custodian for the Acquired Fund (the "Custodian"), to deliver, at the
Closing, a certificate of an authorized officer stating that (i) the Acquired
Fund's portfolio securities, cash, and any other assets ("Assets") shall have
been delivered in proper form to the Acquiring Fund within two business days
prior to or on the Closing Date, and (ii) all necessary taxes in connection with
the delivery of the Assets, including all applicable federal and state stock
transfer stamps, if any, have been paid or provision for payment has been made.
The Acquired Fund's portfolio securities represented by a certificate or other
written instrument shall be presented by the Acquired Fund Custodian to the
custodian for the Acquiring Fund for examination no later than five business
days preceding the Closing Date, and shall be transferred and delivered by the
Acquired Fund as of the Closing Date for the account of the Acquiring Fund duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof. The Acquired Fund's portfolio securities and instruments
deposited with a securities depository, as defined in Rule 17f-4 under the
Investment Company Act of 1940, as amended (the "1940 Act"), shall direct the
Custodian to deliver 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.
3.3 The Acquired Fund shall direct DST Systems, Inc. (the "Transfer
Agent"), on behalf of the Acquired Fund, to deliver at the Closing a certificate
of an authorized officer stating that its records contain the names and
addresses of the Acquired Fund Shareholders and the number and percentage
ownership of outstanding Class A, Class B, Class C and Class T shares owned by
each such shareholder immediately prior to the Closing. The Acquiring Fund shall
issue and deliver a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Secretary of the Acquired Fund, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have
been credited to the Acquired Fund's account on the books of the Acquiring Fund.
At the Closing each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request.
3.4 In the event that on the Valuation Date (a) the New York Stock Exchange
or another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund 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 Fund and Board of Trustees of the Acquired Fund, accurate
appraisal of the value of the net assets of the Acquiring Fund or the Acquired
Fund is impracticable, the Closing Date shall be postponed until the first
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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 Fund represents and warrants to the Acquiring Fund as
follows:
(a) The Acquired Fund is a business trust duly organized and validly
existing under the laws of the Commonwealth of Massachusetts with power under
the Acquired Fund's Declaration of Trust to own all of its properties and assets
and to carry on its business as it is now being conducted;
(b) The Acquired Fund is a registered investment company classified as
a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act, and the registration of
its shares under the Securities Act of 1933, as amended ("1933 Act"), are in
full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act")
and the 1940 Act and such as may be required by state securities laws;
(d) The current prospectus and statement of additional information of
the Acquired Fund and each prospectus and statement of additional information of
the Acquired Fund used during the three years previous to the date of this
Agreement conforms or conformed at the time of its use in all material respects
to the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the Commission thereunder and does not or did not at the time
of its use include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading;
(e) On the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Fund's assets to be transferred to the
Acquiring Fund pursuant to paragraph 1.2 and full right, power, and authority to
sell, assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, and upon delivery and payment for such assets, the Acquiring
Fund will acquire good and marketable title thereto, subject to no restrictions
on the full transfer thereof, including such restrictions as might arise under
the 1933 Act, other than as disclosed to the Acquiring Fund;
(f) The Acquired Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in (i) a material
violation of its Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquired Fund is a
party or by which it is bound, or (ii) the acceleration of any obligation, or
the imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Acquired Fund is a party or by
which it is bound;
(g) The Acquired Fund has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it prior
to the Closing Date;
(h) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or, to its
knowledge, threatened against the Acquired Fund or any of its properties or
assets that, if adversely determined, would materially and adversely affect its
financial condition or the conduct of its business. The Acquired Fund knows of
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no facts which might form the basis for the institution of such proceedings and
is not a party to or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein contemplated;
(i) The Statement of Assets and Liabilities, Statements of Operations
and Changes in Net Assets, and Schedule of Investments of the Acquired Fund at
December 31, 1998 have been audited by PricewaterhouseCoopers LLP, independent
accountants, and are in accordance with generally accepted accounting principles
("GAAP") consistently applied, and such statements (copies of which have been
furnished to the Acquiring Fund) present fairly, in all material respects, the
financial condition of the Acquired Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the Acquired Fund
required to be reflected on a balance sheet (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein;
(j) Since December 31, 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, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (j), a
decline in net asset value per share of the Acquired Fund due to declines in
market values of securities in the Acquired Fund's portfolio, the discharge of
Acquired Fund liabilities, or the redemption of Acquired Fund Shares by
shareholders of the Acquired Fund shall not constitute a material adverse
change;
(k) On the Closing Date, all Federal and other tax returns and reports
of the Acquired Fund required by law to have been filed by such date (including
any extensions) shall have been filed and are or will be correct in all material
respects, and all Federal and other taxes shown as due or required to be shown
as due on said returns and reports shall have been paid or provision shall have
been made for the payment thereof, and to the best of the Acquired Fund's
knowledge, no such return is currently under audit and no assessment has been
asserted with respect to such returns;
(l) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met 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, and will have distributed all
of its investment company taxable income and net capital gain (as defined in the
Code) that has accrued through the Closing Date, and before the Closing Date
will have declared dividends sufficient to distribute all of its investment
company taxable income and net capital gain for the period ending on the Closing
Date;
(m) All issued and outstanding shares of the Acquired Fund are, and on
the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by the Acquired Fund (recognizing that, under Massachusetts
law, it is theoretically possible that shareholders of the Acquired Fund could,
under certain circumstances, be held personally liable for obligations of the
Acquired Fund) and have been offered and sold in every state and the District of
Columbia in compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws. All of the issued and
outstanding shares of the Acquired Fund will, at the time of Closing, be held by
the persons and in the amounts set forth in the records of the Transfer Agent,
on behalf of the Acquired Fund, as provided in paragraph 3.3. The Acquired Fund
does not have outstanding any options, warrants or other rights to subscribe for
or purchase any of the shares of the Acquired Fund, nor is there outstanding any
security convertible into any of the Acquired Fund shares;
(n) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action, if
any, on the part of the Trustees of the Acquired Fund, and, subject to the
approval of the shareholders of the Acquired Fund, this Agreement will
constitute a valid and binding obligation of the Acquired Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
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(o) The information to be furnished by the Acquired Fund for use in
registration statements, proxy materials and other documents filed or to be
filed with any federal, state or local regulatory authority (including the
National Association of Securities Dealers, Inc.), which may be necessary in
connection with the transactions contemplated hereby, shall be accurate and
complete in all material respects and shall comply in all material respects with
Federal securities and other laws and regulations thereunder applicable thereto;
and
(p) The proxy statement of the Acquired Fund (the "Acquired Fund Proxy
Statement") to be included in the Registration Statement referred to in
paragraph 5.6, insofar as it relates to the Acquired Fund, will, on the
effective date of the Registration Statement and on the Closing Date (i) not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not materially
misleading provided, however, that the representations and warranties in this
subparagraph (p) shall not apply to statements in or omissions from the Acquired
Fund Proxy Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished by the Acquiring Fund for use
therein, and (ii) comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder.
4.2 The Acquiring Fund represents and warrants to the Acquired Fund as
follows:
(a) The Acquiring Fund is a corporation duly organized and validly
existing under the laws of the State of California with power under the
Acquiring Fund's Articles of Incorporation to own all of its properties and
assets and to carry on its business as it is now being conducted;
(b) The Acquiring Fund is a registered investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act and the registration of
its shares under the 1933 Act are in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required by state
securities laws;
(d) The current prospectus and statement of additional information of
the Acquiring Fund and each prospectus and statement of additional information
of the Acquiring Fund used during the three years previous to the date of this
Agreement conforms or conformed at the time of its use in all material respects
to the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the Commission thereunder and does not or did not at the time
of its use include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading;
(e) On the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens of other
encumbrances, except those liens or encumbrances as to which the Acquired Fund
has received notice and necessary documentation at or prior to the Closing;
(f) The Acquiring Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in (i) a material
violation of the Acquiring Fund's Articles of Incorporation or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
the Acquiring Fund is a party or by which it is bound, or (ii) the acceleration
of any obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to which the
Acquiring Fund is a party or by which it is bound;
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(g) Except as otherwise disclosed in writing to and accepted by the
Acquired Fund, no litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its knowledge,
threatened against the Acquiring Fund or any of its properties or assets that,
if adversely determined, would materially and adversely affect its financial
condition or the conduct of its business. The Acquiring Fund knows of no facts
which might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated;
(h) The Statement of Assets and Liabilities, Statements of Operations
and Changes in Net Assets and Schedule of Investments of the Acquiring Fund at
June 30, 1999 have been audited by KPMG LLP, independent accountants, and is in
accordance with GAAP consistently applied, and such statements (copies of which
have been furnished to the Acquired Fund) present fairly, in all material
respects, the financial condition of the Acquiring Fund as of such date in
accordance with GAAP, and there are no known contingent liabilities of the
Acquiring Fund required to be reflected on a balance sheet (including the notes
thereto) in accordance with GAAP as of such date not disclosed therein;
(i) Since June 30, 1999, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business, other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquired Fund. For purposes of this subparagraph (i), a
decline in net asset value per share of the Acquiring Fund due to declines in
market values of securities in the Acquiring Fund's portfolio, the discharge of
Acquiring Fund liabilities, or the redemption of Acquiring Fund Shares by
shareholders of the Acquiring Fund, shall not constitute a material adverse
change;
(j) On the Closing Date, all Federal and other tax returns and reports
of the Acquiring Fund required by law to have been filed by such date (including
any extensions) shall have been filed and are or will be correct in all material
respects, and all Federal and other taxes shown as due or required to be shown
as due on said returns and reports shall have been paid or provision shall have
been made for the payment thereof, and to the best of the Acquiring Fund's
knowledge no such return is currently under audit and no assessment has been
asserted with respect to such returns;
(k) For each taxable year of its operation, 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;
(l) All issued and outstanding Acquiring Fund Shares are, and on the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable and have been offered and sold in every state and the District of
Columbia in compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws. The Acquiring Fund does
not have outstanding any options, warrants or other rights to subscribe for or
purchase any Acquiring Fund Shares, nor is there outstanding any security
convertible into any Acquiring Fund Shares;
(m) The execution, delivery and performance of this Agreement will
have been fully authorized prior to the Closing Date by all necessary action, if
any, on the part of the Directors of the Acquiring Fund and this Agreement will
constitute a valid and binding obligation of the Acquiring Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
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(n) The Class A, Class B, Class C and Class T 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 on the Closing
Date have been duly authorized and, when so issued and delivered, will be duly
and validly issued Acquiring Fund Shares, and will be fully paid and
non-assessable;
(o) The information to be furnished by the Acquiring Fund for use in
the registration statements, proxy materials and other documents that may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations applicable
thereto; and
(p) That insofar as it relates to the Acquiring Fund, the Registration
Statement relating to the Acquiring Fund Shares issuable hereunder, the Acquired
Fund Proxy Statement and the proxy statement of the Acquiring Fund (the latter
referred to herein as the "Acquiring Fund Proxy Statement") to be included in
the Registration Statement, and any amendment or supplement to the foregoing,
will, from the effective date of the Registration Statement through the date of
the meeting of shareholders of the Acquired Fund contemplated therein (i) not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not materially
misleading provided, however, that the representations and warranties in this
subparagraph (p) shall not apply to statements in or omissions from the
Registration Statement and the Acquiring Fund Proxy Statement made in reliance
upon and in conformity with information that was furnished by the Acquired Fund
for use therein, and (ii) comply in all material respects with the provisions of
the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 The Acquiring Fund and the Acquired Fund each will operate its business
in the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include the declaration
and payment of customary dividends and distributions, and any other distribution
that may be advisable.
5.2 Each of the Acquired Fund and the Acquiring Fund will call a meeting of
its shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Class A, Class B, Class C and
Class T Acquiring Fund Shares to be issued hereunder are not being acquired for
the purpose of making any distribution thereof, other than in accordance with
the terms of this Agreement.
5.4 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
5.6 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Acquired Fund Proxy Statement referred to in paragraph
4.1(p) and the Acquiring Fund Proxy Statement referred to in paragraph 4.2(p),
all to be included in a Registration Statement on Form N-14 of the Acquiring
Fund (the "Registration Statement"), in compliance with the 1933 Act, the 1934
Act and the 1940 Act, in connection with the meeting of the shareholders of the
Acquired Fund and the Acquiring Fund to consider approval of this Agreement and
the transactions contemplated herein.
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5.7 As soon as is reasonably practicable after the Closing, the Acquired
Fund will make a liquidating distribution to its shareholders consisting of the
Class A, Class B, Class C and Class T Acquiring Fund Shares received at the
Closing.
5.8 The Acquiring Fund and the Acquired Fund shall each use its reasonable
best efforts to fulfill or obtain the fulfillment of the conditions precedent to
effect the transactions contemplated by this Agreement as promptly as
practicable.
5.9 The 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.
5.10 The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state blue sky or securities laws as may be necessary in order to continue
its operations after the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at the Acquired Fund's election, to the
performance by the Acquiring Fund of all the obligations to be performed by it
hereunder on or before the Closing Date, and, in addition thereto, the following
further conditions:
6.1 All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date;
6.2 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in a form reasonably satisfactory to the
Acquired Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquiring Fund made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement and as to such other matters
as the Acquired Fund shall reasonably request;
6.3 The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date; and
6.4 The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each Class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1.
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7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at the Acquiring Fund's election to the performance
by the Acquired Fund of all of the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the 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;
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 Vice
President and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the Acquired Fund made in this
Agreement are true and correct at and as of the Closing Date, except as they may
be affected by the transactions contemplated by this Agreement, and as to such
other matters as the Acquiring Fund shall reasonably request;
7.4 The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date;
7.5 The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each Class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1;
7.6 The Acquired Fund shall have declared and paid a distribution or
distributions prior to the Closing that, together with all previous
distributions, shall have the effect of distributing to its shareholders (i) all
of its investment company taxable income and all of its net realized capital
gains, if any, for the period from the close of its last fiscal year to 4:00
p.m. Eastern time on the Closing; and (ii) any undistributed investment company
taxable income and net realized capital gains from any period to the extent not
otherwise already distributed.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by (i) the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of the Acquired Fund's
Declaration of Trust, By-Laws, applicable Massachusetts law and the 1940 Act,
and certified copies of the resolutions evidencing such approval shall have been
delivered to the Acquiring Fund, and (ii) the requisite vote of the holders of
the outstanding shares of the Acquiring Fund in accordance with the provisions
of the Acquiring Company's Articles of Incorporation, By-Laws, applicable
California law and the 1940 Act, and certified copies of the resolutions
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evidencing such approval shall have been delivered to the Acquired Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Acquired Fund may waive the conditions set forth in this paragraph 8.1;
8.2 On the Closing Date no action, suit or other proceeding shall be
pending or, to its knowledge, threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain damages or other relief
in connection with, this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the 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, provided that either party hereto may for
itself waive any of such conditions;
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and
8.5 The parties shall have received the opinion of Dechert Price & Rhoads
addressed to the Acquiring Fund and Acquired Fund substantially to the effect
that, based upon certain facts, assumptions, and representations, the
transaction contemplated by this Agreement shall constitute a tax-free
reorganization for Federal income tax purposes, unless, based on the
circumstances existing at the time of the Closing, Dechert Price & Rhoads
determines that the transaction contemplated by this Agreement does not qualify
as such. The delivery of such opinion is conditioned upon receipt by Dechert
Price & Rhoads of representations it shall request of the Acquiring Fund and the
Acquired Fund. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the condition set forth in this
paragraph 8.5.
9. BROKERAGE FEES AND EXPENSES
9.1 The Acquiring Fund represents and warrants to the other that there are
no brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
9.2 The expenses relating to the proposed Reorganization will be paid by
the Acquired Fund and the Acquiring Fund pro rata based upon the relative net
assets of the Funds as of the close of business on the record date for
determining the shareholders of the Acquired Fund and the Acquiring Fund
entitled to vote on the Reorganization. The costs of the Reorganization shall
include, but not be limited to, costs associated with obtaining any necessary
order of exemption from the 1940 Act, preparation of the Registration Statement,
printing and distributing the Acquiring Fund's prospectus and the Acquired
Fund's and Acquiring Fund's proxy materials, legal fees, accounting fees,
securities registration fees, and expenses of holding shareholders' meetings.
Notwithstanding any of the foregoing, expenses will in any event be paid by the
party directly incurring such expenses if and to the extent that the payment by
the other party of such expenses would result in the disqualification of such
party as a "regulated investment company" within the meaning of Section 851 of
the Code.
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10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 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.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing shall survive the Closing.
11. TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
and abandoned by mutual agreement of the parties hereto or by either party by
resolution of the party's Board of Trustees or Directors, at any time prior to
the Closing Date, if circumstances should develop that, in the opinion of such
Board, make proceeding with the Agreement inadvisable.
12. 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 Fund and the Acquiring Fund; provided, however, that following the
meeting of the shareholders of the Acquiring Fund and the Acquired Fund called
pursuant to paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Class A,
Class B, Class C and Class T Acquiring Fund Shares to be issued to the Acquired
Fund Shareholders under this Agreement to the detriment of such shareholders
without their further approval.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to the Acquiring Fund or to the
Acquired Fund, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004,
attn: James M. Hennessy, in each case with a copy to Dechert Price & Rhoads,
1775 Eye Street, N.W., Washington, D.C. 20006, attn: Jeffrey S. Puretz.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to its principles of conflicts
of laws.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
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14.5 It is expressly agreed that the obligations of the parties hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents, or employees of the Acquired Fund personally, but shall bind only the
trust property of the Acquired Fund, as provided in the Declaration of Trust of
the Acquired Fund. The execution and delivery by such officers shall not be
deemed to have been made by any of them individually or to impose any liability
on any of them personally, but shall bind only the trust property of the
Acquired Fund as provided in its Declaration of Trust.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
Attest: PILGRIM GOVERNMENT SECURITIES
INCOME FUND, INC.
/s/ James M. Hennessy By: /s/ Michael J. Roland
- ------------------------------ ----------------------------------
SECRETARY Its: Principal Accounting Officer
Attest: PILGRIM GOVERNMENT SECURITIES FUND
/s/ James M. Hennessy By: /s/ Michael J. Roland
- ------------------------------ ----------------------------------
SECRETARY Its: Principal Accounting Officer
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APPENDIX B
ADDITIONAL INFORMATION REGARDING
PILGRIM GOVERNMENT SECURITIES INCOME FUND
(THE "FUND")
SHAREHOLDER GUIDE
PILGRIM PURCHASE OPTIONS(TM)
This Proxy Statement/Prospectus relates to four separate classes of the
Fund: Class A, Class B, Class C and Class T, 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 Fund shares
issued to you in the Reorganization will be the same as those that applied to
the Government Securities Fund shares held by you immediately prior to the
Reorganization, and the period that you held the Government Securities Fund
shares will be included in the holding period of the Fund shares for purposes of
calculating contingent deferred sales charges and determining conversion rights.
Purchases of the shares of the Fund after the Reorganization will be subject to
the sales load structure and conversion rights discussed below.
The Fund also offers Class M and Q 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 T shares are shown and contrasted in the chart below.
<TABLE>
<CAPTION>
Class A Class B Class C Class T (1)
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Maximum Initial Sales Charge on Purchases 4.75%(2) None None None
CDSC None (3) 5.00%(4) 1.00%(5) 4.00%(6)
Annual Service and Distribution (12b-1) Fee (7) 0.25% 1.00% 1.00% 0.65%
Maximum Purchase Unlimited $250,000 Unlimited Unlimited
Automatic Conversion to Class A N/A 8 Years(8) N/A 8 Years(8)
</TABLE>
- ----------
(1) Class T shares are no longer available for purchase, unless you are
investing income earned on Class T shares or exchanging Class T shares of
another fund.
(2) Imposed upon purchase. Reduced for purchases of $50,000 and over.
(3) For investments of $1 million or more, a CDSC of no more than 1% may be
assessed on redemptions of shares that were purchased without an initial
sales charge. See "Class A Shares: Initial Sales Charge Alternative."
(4) Imposed upon redemption within 6 years from purchase. Shares exchanged from
Government Securities Fund are subject to CDSC until after the fifth year
from purchase. Fee has scheduled reductions after the first year. See
"Class B Shares: Deferred Sales Charge Alternative."
(5) Imposed upon redemption within 1 year from purchase.
(6) Imposed upon redemption within 4 years from purchase.
(7) Annual asset-based distribution charge.
(8) Class B and Class T shares of Pilgrim GSIF issued to shareholders of
Government Securities Fund in the Reorganization will convert to Class A
shares in the eighth year from the original date of purchase of the Class B
or Class T shares of Government Securities Fund.
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.
B-1
<PAGE>
CLASS A SHARES INITIAL SALES CHARGE ALTERNATIVE. Class A shares of the Fund
are sold at the net asset value ("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'
As a % of Reallowance
Offering As a % as a % of
Your Investment Price Per Share of Nav Offering Price
--------------- --------------- ------ --------------
Less than $50,000 4.75% 4.99% 4.25%
$50,000 - $99,999 4.50% 4.71% 4.00%
$100,000 - $249,999 3.50% 3.63% 3.00%
$250,000 - $499,999 2.50% 2.56% 2.25%
$500,000 - $1,000,000 2.00% 2.04% 1.75%
There is no initial sales charge on purchases of $1,000,000 or more.
However, Pilgrim Securities, Inc. (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
During Which
Your Investment CDSC CDSC Applies
--------------- ---- ------------
$1,000,000 but less than $2,499,000 1.00% 2 Years
$2,499,000 but less than $4,999,999 0.50% 1 Year
$5,000,000 and over 0.25% 1 Year
However, Class A shares of the Fund issued in connection with the
Reorganization with respect to Class A shares of the Government Securities Fund
that were subject to a CDSC at the time of the Reorganization will be subject to
a CDSC of up to 1% from the date of purchase of the original shares of the
Government Securities Fund.
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
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
funds (excluding Pilgrim Money Market Fund) ("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. 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 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.
B-2
<PAGE>
SPECIAL PURCHASE WITHOUT A SALES CHARGE. Class A shares may be purchased at
NAV without a sales charge by certain individuals and institutions. For
additional information, contact the Shareholder Servicing Agent at (800)
992-0180, or see the Fund's Statement of Additional Information.
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%
However, Class B shares of the Fund issued in connection with the
Reorganization with respect to Class B shares of the Government Securities Fund
that were purchased prior to November 1, 1999 and were subject to a CDSC at the
time of the Reorganization will be subject to the CDSC in place when those
shares were purchased.
Class B shares will automatically convert into Class A shares eight years
after purchase, except that Class B shares of the Fund issued in connection with
the Reorganization with respect to Class B shares of the Government Securities
Fund will convert to Class A shares eight years after the purchase of the
original shares of the Government Securities Fund. For additional information on
the CDSC and the conversion of Class B, see the Fund's Statement of Additional
Information.
CLASS C SHARES. Class C shares redeemed within one year are assessed a CDSC
of 1%. 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 T SHARES. Class T shares are only available to shareholders that
previously held shares of Class T of the Government Securities Fund, and may
only be obtained by such shareholders by reinvesting dividends distributed to
the Class T shareholders or by exchanging Class T shares from another fund
within the Pilgrim Funds.
Class T shares of the Fund are subject to a distribution fee at an annual
rate of 0.65% of the average daily net assets of the Class.
B-3
<PAGE>
Class T shares will automatically convert into Class A shares approximately
eight years after purchase, except that Class T shares of the Pilgrim GSIF
issued in connection with the Reorganization will convert to Class A shares
eight years after the purchase of the original shares of the Government
Securities Fund. For additional information about Class T shares, see the
Pilgrim Prospectus and the Statement of Additional Information for the Pilgrim
Funds.
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 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 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.
3) The CDSC also will be waived in the case of mandatory distributions from
a tax-deferred retirement plan or an IRA.
If you think you may be eligible for a CDSC waiver, contact the Shareholder
Servicing Agent at (800) 992-0180.
REINSTATEMENT PRIVILEGE. Class B and Class C shareholders who have redeemed
their shares in any open-end Pilgrim Fund may reinvest some or all of the
proceeds in the same share class within 90 days without a sales charge.
Reinstated Class B and Class C shares will retain their original cost and
purchase date for purposes of the CDSC. This privilege can be used only once per
calendar year. See the Statement of Additional Information for the Fund for
details or contact the Shareholder Servicing Agent at (800) 992-0180.
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 T shares.
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 services rendered to shareholders, 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% none
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class T 0.25% 0.50%
B-4
<PAGE>
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 T 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% 0.00%
Class B 0.25% 0.00%
Class C 0.25% 0.75%
Class T 0.25% 0.15%
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 fees, proxy solicitation costs, and the compensation of Directors
who are not affiliated with Pilgrim Investments. Most of Fund expenses are
allocated proportionately among all of the outstanding shares of the Fund.
However, the Rule 12b-1 Plan fees for each class of shares are charged
proportionately only to the outstanding shares of that class.
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 IRAs). The
minimum initial investment in the Fund is $1,000 ($250 for IRAs), and the
minimum for additional investment in the Fund is $100.
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. When you buy shares, you pay the NAV plus any applicable
sales charge. When you sell shares, you receive the NAV minus any applicable
deferred sales charge. Exchange orders are effected at NAV.
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.
DETERMINATION OF NET ASSET VALUE. The NAV per share of each class of the
Fund's shares is determined each business day 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 it is open for business. The NAV per share of each Class of the Fund is
calculated by taking the value of the Fund's assets attributable to that Class,
subtracting the Fund's liabilities attributable to that Class, and dividing by
the number of shares of that Class that are outstanding.
In general, assets are valued based on actual or estimated market value,
with special provisions for assets not having readily available market
quotations, and short-term debt securities, and for situations where market
quotations are deemed unreliable. The NAV per share of each class of the Fund
will fluctuate in response to the changes in market conditions and other
factors. Portfolio securities for which market quotations are readily available
B-5
<PAGE>
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.
EXECUTION OF REQUESTS. Purchase and sale requests are executed at the next
NAV determined after the order is received in proper form by the Transfer Agent
or the Distributor. A purchase order will be deemed to be in proper form when
all of the required steps set forth above under "Purchase of Shares" have been
completed. If you purchase by wire, however, the order will be deemed to be in
proper form after the telephone notification and the federal funds wire have
been received. If you purchase by wire, you must submit an application form in a
timely fashion. If an order or payment by wire is received after the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern
Time), the shares will not be credited until the next business day.
You will receive a confirmation of each new transaction in your account,
which also will show you the number of shares of the Fund 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.
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 recording telephone instructions for exchanges
and expedited redemptions, requiring the caller to give certain specific
identifying information, and providing written confirmation to shareholders of
record not later than five days following any such telephone transactions. If
the 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 restrictions 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 (no more than four per year). Pilgrim Investments reserves
the right, upon 60 days prior notice, to restrict the frequency or 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 any other
open-end Pilgrim Fund without payment of any additional sales charge. In
addition, Class T shares of any fund may be exchanged for Class B shares of the
Pilgrim Money Market Fund. If you exchange and subsequently redeem your shares,
any applicable CDSC will be based on the full period of the share ownership.
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.
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,
B-6
<PAGE>
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.
SMALL ACCOUNTS. Due to the relatively high cost of handling 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.
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. For additional information, contact he
Shareholder Servicing Agent at (800) 992-0180, or see the Fund's Statement of
Additional Information.
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 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 harmful to the Fund, 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.
B-7
<PAGE>
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. The
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. As of September 30, 1999, Pilgrim Investments managed over
$7.7 billion in assets. Pilgrim Investments acquired certain assets of the
previous advisers to certain of the Funds in separate transactions that closed
on April 7, 1995 and May 24, 1999. 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 the Distributor are
indirect, wholly owned subsidiaries of ReliaStar Financial Corp. (NYSE: RLR)
("ReliaStar"). Through its subsidiaries, ReliaStar offers individuals and
institutions life insurance and annuities, employee benefits products and
services, life and health reinsurance, retirement plans, mutual funds, bank
products and personal finance education.
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 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.
B-8
<PAGE>
DIVIDENDS, DISTRIBUTIONS & TAXES
DIVIDENDS AND DISTRIBUTIONS. The 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 T account in the
Fund invested into a Pilgrim Fund which offers Class A, B, C or T 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
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.
B-9
<PAGE>
FINANCIAL HIGHLIGHTS
PILGRIM
GOVERNMENT
SECURITIES
INCOME FUND
- --------------------------------------------------------------------------------
The information in the table below has been audited by KPMG LLP, independent
auditors.
<TABLE>
<CAPTION>
Class A
--------------------------------------------------
Year Ended June 30,
--------------------------------------------------
1999 1998 1997 1996 1995(a)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 12.88 12.71 12.59 12.97 12.73
--------- ----- ----- ----- -----
Income (loss) from investment operations:
Net investment income $ 0.76 0.64 0.69 0.75 0.84
Net realized and unrealized gain (loss)
on investments $ (0.52) 0.30 0.20 (0.32) 0.24
--------- ----- ----- ----- -----
Total from investment operations $ 0.24 0.94 0.89 0.43 1.08
--------- ----- ----- ----- -----
Less distributions from:
Net investment income $ 0.77 0.77 0.73 0.75 0.84
Tax return of capital $ -- -- 0.04 0.06 --
--------- ----- ----- ----- -----
Total distributions $ 0.77 0.77 0.77 0.81 0.84
--------- ----- ----- ----- -----
Net asset value, end of period $ 12.35 12.88 12.71 12.59 12.97
========= ===== ===== ===== =====
TOTAL RETURN (c) % 1.89 7.63 7.33 3.34 8.96
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $ 21,060 23,682 29,900 38,753 43,631
Ratios to average net assets:
Net expenses after expense reimbursement (d) % 1.40 1.50 1.42 1.51 1.40
Gross expenses prior to expense reimbursement (d) % 1.40 1.58 1.42 1.57 1.54
Net investment income after expense
reimbursement (d) % 6.05 5.13 5.78 5.64 6.37
Portfolio turnover rate % 58 134 172 170 299
</TABLE>
- ----------
(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) Commencement of offering shares.
(c) 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.
(d) Annualized.
B-10
<PAGE>
<TABLE>
<CAPTION>
Class B Class C Class M
- -------------------------------------- ---------- --------------------------------
July 17, June 11, July 17,
Year Ended June 30, 1995(b) to 1999(b) to Year Ended June 30, 1995(b) to
- -------------------------- June 30, June 30, -------------------- June 30,
1999 1998 1997 1996 1999 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 12.84 12.68 12.59 12.95 12.24 12.88 12.72 12.59 12.95
- --------- ----- ----- ----- ----- ----- ----- ----- -----
$ 0.69 0.60 0.67 0.66 2.05 0.69 0.64 0.70 0.68
$ (0.54) 0.24 0.11 (0.37) (1.86) (0.52) 0.23 0.14 (0.36)
$ 0.15 0.84 0.78 0.29 0.19 0.17 0.87 0.84 0.32
- --------- ----- ----- ----- ----- ----- ----- ----- -----
$ 0.69 0.68 0.69 0.65 -- 0.71 0.71 0.70 0.68
$ -- -- -- -- -- -- -- 0.01 --
- --------- ----- ----- ----- ----- ----- ----- ----- -----
$ -- -- -- -- -- -- -- -- --
- --------- ----- ----- ----- ----- ----- ----- ----- -----
$ 12.30 12.84 12.68 12.59 12.43 12.34 12.88 12.72 12.59
========= ===== ===== ===== ===== ===== ===== ===== =====
% 1.09 6.78 6.38 2.25 1.55 1.31 7.02 6.88 2.52
$ 12,426 3,220 1,534 73 7 751 224 61 24
% 2.15 2.25 2.17 2.26 2.15 1.90 2.00 1.92 2.01
% 2.15 2.29 2.17 2.41 2.15 1.90 2.05 1.92 2.16
% 5.30 4.24 4.92 4.98 5.30 5.57 4.29 5.25 5.73
% 58 134 172 170 58 58 134 172 170
</TABLE>
B-11
<PAGE>
FINANCIAL HIGHLIGHTS
PILGRIM GOVERNMENT SECURITIES FUND
The following chart shows the Fund's financial performance by share class.
The 1998, 1997, 1996 and 1995 figures have been audited by
PricewaterhouseCoopers LLP, whose report, along with the Fund's financial
statements, are included in the annual report, which is available upon request.
The figures prior to 1995 were audited by other independent accountants.
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------------- ---------------------------------
Six months Six months
ended ended
June 30, Year Ended December 31, June 30, Year Ended December 31,
1999 ------------------------------- 1999 ---------------------------------
(unaudited) 1998 1997 1996 1995(1) (unaudited) 1998 1997 1996 1995(1)
----------- ---- ---- ---- ------- ----------- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value at the beginning
of the period $ 9.38 9.53 9.48 10.07 9.51 9.40 9.55 9.48 10.07 9.51
--------- ---- ---- ----- ---- ---- ---- ---- ----- ----
Net investment income $ 0.27 0.49 0.68 0.63 0.34 0.23 0.51 0.52 0.57 0.30
Net realized and unrealized gain
(loss) on investments $ (0.50) -- -- (0.60) 0.59 (0.49) (0.09) 0.11 (0.60) 0.59
--------- ---- ---- ----- ---- ---- ---- ---- ----- ----
Total from investment operations $ (0.23) 0.49 0.68 0.03 0.93 (0.26) 0.42 0.63 (0.03) 0.89
--------- ---- ---- ----- ---- ---- ---- ---- ----- ----
Dividends from net investment income $ (0.32) (0.64) (0.63) (0.62) (0.37) (0.28) (0.57) (0.56) (0.56) (0.33)
Distributions from capital $ -- -- -- -- -- -- -- -- -- --
--------- ---- ---- ----- ---- ---- ---- ---- ----- ----
Total distributions $ (0.32) (0.64) (0.63) (0.62) (0.37) (0.28) (0.57) (0.56) (0.56) (0.33)
--------- ---- ---- ----- ---- ---- ---- ---- ----- ----
Net asset value at the end of the
period $ 8.83 9.38 9.53 9.48 10.07 8.86 9.40 9.55 9.48 10.07
========= ==== ==== ==== ===== ==== ==== ==== ==== =====
Total investment return(2) % (2.54) 5.27 7.46 0.57 10.04 (2.76) 4.49 6.93 (0.15) 9.61
RATIOS AND SUPPLEMENTAL DATA
Net assets at the end of the period
(000s) $ 28,131 31,181 1,744 14,185 3,235 27,274 27,250 13,503 9,135 2,790
Ratio of expenses to average net
assets % 1.20 1.17 1.15 1.09 1.20(3) 1.91 1.90 1.89 1.80 1.70(3)
Ratio of expense reimbursement to
average net assets % -- 0.15 0.17 0.20 0.20(3) -- 0.15 0.17 0.20 0.20(3)
Ratio of net investment income
(loss) to average net assets % 5.94 6.18 6.44 6.85 6.01(3) 5.23 5.55 5.50 6.05 5.20(3)
Portfolio turnover rate % 40 304 129 101 295 40 304 129 101 295
</TABLE>
- ----------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
B-12
<PAGE>
<TABLE>
<CAPTION>
Class C Class T
- -------------------------------------------- ---------------------------------
Six months Six months
ended ended
June 30, Year Ended December 31, June 30, Year Ended December 31,
1999 ------------------------------- 1999 ---------------------------------------------
(unaudited) 1998 1997 1996 1995(1) (unaudited) 1998 1997 1996 1995 1994
- ----------- ---- ---- ---- ------- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9.38 9.54 9.47 10.07 9.51 9.39 9.55 9.48 10.07 8.74 10.32
- -------- ---- ---- ----- ---- ---- ---- ---- ----- ---- -----
$ 0.24 0.45 0.59 0.58 0.30 0.25 0.58 0.57 0.60 0.58 0.56
$ (0.50) (0.05) 0.04 (0.62) 0.59 (0.49) (0.14) 0.10 (0.59) 1.35 (1.56)
- -------- ---- ---- ----- ---- ---- ---- ---- ----- ---- -----
$ (0.26) 0.40 0.63 (0.04) 0.89 (0.24) 0.44 0.67 0.01 1.93 (1.00)
$ (0.28) (0.56) (0.56) (0.56) (0.33) (0.30) (0.60) (0.60) (0.60) (0.60) (0.57)
$ -- -- -- -- -- -- -- -- -- -- (0.01)
- -------- ---- ---- ----- ---- ---- ---- ---- ----- ---- -----
$ (0.28) (0.56) (0.56) (0.56) (0.33) (0.30) (0.60) (0.60) (0.60) (0.60) (0.58)
- -------- ---- ---- ----- ---- ---- ---- ---- ----- ---- -----
$ 8.84 9.38 9.54 9.47 10.07 8.85 9.39 9.55 9.48 10.07 8.74
======== ==== ==== ==== ===== ==== ==== ==== ==== ===== ====
% (2.81) 4.35 6.93 (0.21) 9.61 (2.69) 4.84 7.38 0.32 22.90 (9.82)
$ 2,465 2,652 542 1,147 8 41,018 49,713 89,939 112,126 150,951 152,608
% 1.97 1.90 1.85 1.80 1.68(3) 1.54 1.55 1.45 1.30 1.30 1.29
% -- 0.15 0.17 0.21 0.20(3) -- 0.15 0.20 0.21 0.20 0.20
% 5.15 5.44 5.67 6.22 5.28(3) 5.60 5.97 5.99 6.37 6.23 6.00
% 40 304 129 101 295 40 304 129 101 295 315
</TABLE>
B-13
<PAGE>
APPENDIX C
The following is a list of the current funds in the Pilgrim 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:
Fund Classes Offered
---- ---------------
Pilgrim MagnaCap Fund A, B, C, M and Q
Pilgrim LargeCap Leaders Fund A, B, C, M and Q
Pilgrim Research Enhanced Index Fund A, B, C, I and Q
Pilgrim Growth Opportunities Fund A, B, C, I, Q and T
Pilgrim LargeCap Growth Fund A, B, C and Q
Pilgrim MidCap Value Fund A, B, C, M, and Q
Pilgrim MidCap Opportunities Fund A, B, C, I and Q
Pilgrim MidCap Growth Fund A, B, C and Q
Pilgrim Growth + Value Fund A, B, C and Q
Pilgrim SmallCap Opportunities Fund A, B, C, I, Q and T
Pilgrim SmallCap Growth Fund A, B, C and Q
Pilgrim Bank and Thrift Fund A and B
Pilgrim Worldwide Growth Fund A, B, C and Q
Pilgrim International Value Fund A, B, C and Q
Pilgrim International Core Growth Fund A, B, C and Q
Pilgrim International SmallCap Growth Fund A, B, C and Q
Pilgrim Emerging Markets Value Fund A, B and C
Pilgrim Emerging Countries Fund A, B, C and Q
Pilgrim Asia-Pacific Equity Fund A, B and M
Pilgrim Government Securities Income Fund A, B, C, M, Q and T
Pilgrim Government Securities Fund (1) A, B, C and T
Pilgrim Strategic Income Fund A, B, C and Q
Pilgrim High Yield Fund A, B, C, M and Q
Pilgrim High Yield Fund II A, B, C, Q and T
Pilgrim High Yield Fund III (2) A, B, C and T
Pilgrim High Total Return Fund A, B and C
Pilgrim High Total Return Fund II A, B and C
Pilgrim Money Market Fund A, B and C
Pilgrim Balanced Fund A, B, C, Q and T
Pilgrim Income & Growth Fund (3) A, B and C
Pilgrim Balance Sheet Opportunities Fund (3) A, B, C and T
Pilgrim Convertible Fund A, B, C and Q
- ----------
(1) If approved by shareholders, this fund will be reorganized into the
Pilgrim Government Securities Income Fund.
(2) If approved by shareholders, this fund will be reorganized into the Pilgrim
High Yield Fund II.
(3) If approved by shareholders, these funds will be reorganized into the
Pilgrim Balanced Fund.
C-1
<PAGE>
APPENDIX D
As of November 22, 1999, the following persons owned of record 5% or more
of the outstanding shares of the specified class of Government Securities Fund:
<TABLE>
<CAPTION>
% of Class % of Fund % of Fund
Before Before After
Name and Address Class Reorganization Reorganization Reorganization
---------------- ----- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Merrill Lynch Pierce Fenner B 25.12% 7.30% 5.09%
& Smith, For the Sole Benefit
of its Customers,
Attn: Fund Admin
4800 Deer Lake Drive E 2nd Floor
Jacksonville, FL 32246-6484
First Clearing Corporation C 8.08% 0.16% 0.11%
W Dean Bidgood, Jr. IRA
C/o Bidgood & Associates
2605 Meridian Pkwy, Suite 200
Merrill Lynch Pierce Fenner & Smith, C 39.18% 0.76% 0.51%
For the Sole Benefit of its Customers,
Attn: Fund Admin
4800 Deer Lake Drive E 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
As of November 22, 1999, the following persons owned beneficially or of
record 5% or more of the outstanding shares of the specified class of Pilgrim
GSIF:
<TABLE>
<CAPTION>
% of Class % of Fund % of Fund
Before Before After
Name and Address Class Reorganization Reorganization Reorganization
---------------- ----- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Red Lake County Court House A 6.98% 4.15% 1.09%
Attn: Jay Gilemette
Red Lake Falls, MN 56750
Merrill Lynch Pierce Fenner & Smith, A 24.18% 14.36% 3.75%
For the Sole Benefit of Its Customers,
Attn: Fund Admin
4800 Deer Lake Drive E 2nd Floor
Jacksonville, FL 32246-6484
Merrill Lynch Pierce Fenner & Smith, B 49.31% 18.03% 4.68%
For the Sole Benefit of Its Customers,
Attn: Fund Admin
4800 Deer Lake Drive E 2nd Floor
Jacksonville, FL 32246-6484
Merrill Lynch Pierce Fenner & Smith, C 62.69% 0.91% 0.29%
For the Sole Benefit of Its Customers,
Attn: Fund Admin
4800 Deer Lake Drive E 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
D-1
<PAGE>
<TABLE>
<CAPTION>
% of Class % of Fund % of Fund
Before Before After
Name and Address Class Reorganization Reorganization Reorganization
---------------- ----- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Gail C. Mazur IRA C 17.66% 0.26% 0.07%
11 Nettlecreek Rd.
Fairport, NY 14450
George E Leslie & Florence E M 5.39% 0.14% 0.04%
Leslie Family Trust
PO Box 70400
Pasadena, CA 91117
Carol A McArthur M 8.31% 0.22% 0.06%
Separate Property
395 Sawdust Rd Suite 2153
The Woodlands, TX 77380
Donaldson Lufkin Jenrette FBO M 20.19% 0.52% 0.14%
Cheryl E Kantor
633 W Southern Ave, Unit 1139
Tempe, AZ 85282
Doris J Lubell M 6.24% 0.16% 0.04%
200 E 94th St Apt 1411
New York, NY 10128
Dr. Antonio Aguirre M 18.30% 0.47% 0.12%
Zeisselstr 8
60138 Frankfurt AM
Germany
D-2
</TABLE>
