As filed with the Securities and Exchange Commission on December 21, 1999
Securities Act File No. 33-56094
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. __
Post-Effective Amendment No. __
PILGRIM MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004
(Address of Principal Executive Offices) (Zip Code)
(800) 992-0180
(Registrant's Area Code and Telephone Number)
James M. Hennessy, Esq.
Pilgrim Investments, Inc.
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
(Name and Address of Agent for Service)
With copies to:
Jeffrey S. Puretz, Esq.
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
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Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
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It is proposed that this filing will become effective on January 20, 2000
pursuant to Rule 488 under the Securities Act of 1933.
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No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended.
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<PAGE>
Pilgrim Income & Growth Fund
and
Pilgrim Balance Sheet Opportunities Fund
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 992-0180
February 8, 2000
Dear Shareholder:
Your Board of Trustees has called a Special Meeting of Shareholders of the
Pilgrim Income & Growth Fund (formerly Northstar Income and Growth Fund) and the
Pilgrim Balance Sheet Opportunities Fund (formerly Northstar Balance Sheet
Opportunities Fund) to be held at 9:00 a.m., local time, on March 24, 2000 at 40
North Central Avenue, Suite 1200, Phoenix, Arizona 85004.
The Board of Trustees has approved a reorganization of each of these Funds
into the Pilgrim Balanced Fund, which is managed by Pilgrim Investments, Inc.
and is part of the Pilgrim group of funds (the "Reorganization"). The Balanced
Fund has investment objectives and policies that are similar in many respects to
those of Pilgrim Income & Growth Fund and Pilgrim Balance Sheet Opportunities
Fund, and the reorganizations are 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 Income &
Growth Fund (a series of Pilgrim Mayflower Trust) and the Pilgrim Balance Sheet
Opportunities Fund each unanimously approved this proposal and recommended
shareholders vote "FOR" the proposal.
A Proxy Statement/Prospectus that describes the reorganizations 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 meeting 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,
Robert W. Stallings
President
<PAGE>
Pilgrim Income & Growth Fund
and
Pilgrim Balance Sheet Opportunities Fund
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 992-0180
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
PILGRIM INCOME & GROWTH FUND
AND PILGRIM BALANCE SHEET OPPORTUNITIES FUND
TO BE HELD ON MARCH 24, 2000
To the Shareholders:
A Special Meeting of Shareholders of the Pilgrim Income & Growth Fund and
the Pilgrim Balance Sheet Opportunities Fund (formerly, Northstar Income &
Growth Fund and Northstar Balance Sheet Opportunities Fund, respectively) will
be held on March 24, 2000 at 9:00 a.m., local time, at 40 North Central Avenue,
Suite 1200, Phoenix, Arizona 85004.
The purposes of the Special Meeting of Pilgrim Income & Growth 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 Income & Growth
Fund by Pilgrim Balanced 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 Balance Sheet
Opportunities 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 Balance Sheet
Opportunities Fund by Pilgrim Balanced Fund; and
2. To transact such other business as may properly come before the Special
Meeting of Shareholders.
Shareholders of record at the close of business on January 24, 2000 are
entitled to notice of, and to vote at, the meeting. Your attention is called to
the accompanying Proxy Statement/Prospectus. Regardless of whether you plan to
attend the meeting, PLEASE COMPLETE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY
CARD so that a quorum will be present and a maximum number of shares may be
voted. If you are present at the meeting, you may change your vote, if desired,
at that time.
By Order of the Boards of Trustees
James M. Hennessy,
Secretary
February 8, 2000
<PAGE>
TABLE OF CONTENTS
INTRODUCTION............................................................... 1
SUMMARY ................................................................... 3
INVESTMENT OBJECTIVES AND POLICIES......................................... 7
Comparison of Objectives and Primary Investment Strategies............... 7
Comparison of Portfolio Characteristics.................................. 10
Relative Performance..................................................... 11
Comparison of Risks of Investing in the Funds............................ 11
Comparison of Securities and Investment Techniques....................... 13
COMPARISON OF FEES AND EXPENSES............................................ 17
Operating Expenses................................................ 17
Expense Limitation Arrangements................................... 20
Transaction Fees On New Investments............................... 21
ADDITIONAL INFORMATION ABOUT BALANCED FUND................................. 23
INFORMATION ABOUT THE REORGANIZATION....................................... 25
ADDITIONAL INFORMATION ABOUT THE FUNDS..................................... 28
GENERAL INFORMATION........................................................ 29
APPENDIX A................................................................. A-1
APPENDIX B................................................................. B-1
APPENDIX C................................................................. C-1
APPENDIX D................................................................. D-1
APPENDIX E................................................................. E-1
<PAGE>
PROXY STATEMENT/PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
MARCH 24, 2000
PILGRIM INCOME & GROWTH FUND
(formerly Northstar Income & Growth Fund; a series of Pilgrim Mayflower Trust)
and the
PILGRIM BALANCE SHEET OPPORTUNITIES FUND
(formerly Northstar Balance Sheet Opportunities Fund)
relating to the reorganization into
PILGRIM BALANCED FUND
(a series of Pilgrim Mutual Funds)
(COLLECTIVELY, THE "FUNDS")
INTRODUCTION
This Proxy Statement/Prospectus provides you with information about two
proposed transactions. These transactions involve the transfer of all the assets
and liabilities of Pilgrim Income & Growth Fund (formerly Northstar Income &
Growth Fund) ("Income & Growth Fund") and Pilgrim Balance Sheet Opportunities
Fund (formerly Northstar Balance Sheet Opportunities Fund) ("Balance Sheet
Opportunities Fund") (collectively, the "Target Funds") to Pilgrim Balanced Fund
("Balanced Fund") in exchange for shares of Balanced Fund (the
"Reorganization"). Each Target Fund would then distribute to its shareholders
their portion of the shares of Balanced Fund it received in the Reorganization.
The result would be a liquidation of each of the Target Funds. You would receive
shares of Balanced Fund having an aggregate value equal to the aggregate value
of the shares you held of Income & Growth Fund and/or Balance Sheet
Opportunities Fund, as applicable, as of the close of business on the business
day before the closing of the Reorganization. You are being asked to vote on the
Agreement and Plan of Reorganizations through which these transactions would be
accomplished.
Because you, as a shareholder of one or both of the Target Funds, are being
asked to approve a transaction that will result in your holding of shares of
Balanced Fund, this Proxy Statement also serves as a Prospectus for Balanced
Fund.
This Proxy Statement/Prospectus, which you should retain for future
reference, contains important information about the Balanced Fund 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 (the "Pilgrim Prospectus") and the Statement of Additional
Information for Pilgrim group of funds dated January 4, 2000, each of 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 Balanced Fund dated June 30, 1999 is included
herewith and is incorporated herein by reference. You may receive a copy of the
most recent annual report for any 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 Balanced Fund from the SEC's 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
Pilgrim Mayflower Trust ("Pilgrim Mayflower Trust"), on behalf of the Income &
Growth Fund, and Balance Sheet Opportunities Fund each approved an Agreement and
Plan of Reorganization (each a "Reorganization Agreement," collectively, the
"Reorganization Agreements"). Subject to shareholder approval, each
Reorganization Agreement provides for:
* the transfer of all of the assets of the Target Fund to Balanced Fund,
in exchange for shares of Balanced Fund;
* the assumption by Balanced Fund of all of the liabilities of the
Target Fund;
* the distribution of the Balanced Fund shares to the shareholders of
the Target Fund; and
* the complete liquidation of the Target Fund (the "Reorganization").
The Reorganization is expected to be effective upon the opening of business
on March 27, 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 and
Class C Shares of the Target Funds, as well as Class T shares of Balance Sheet
Opportunities Fund, would become a shareholder of the same Class of Balanced
Fund. Each shareholder would hold, immediately after the Closing, shares of each
Class of Balanced Fund having an aggregate value equal to the aggregate value of
the shares of that same Class of Income & Growth Fund and/or Balance Sheet
Opportunities Fund, as applicable, 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 three substantially similar mutual funds
within the same group of funds. Shareholders in the Target Funds (as well as
those in Balanced Fund) 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 by each of the Target Funds
requires the affirmative vote of a majority of the outstanding shares of the
pertinent fund. In the event that the shareholders of only one of the Target
Funds approve the Reorganization Agreement that they are considering, that
particular Fund whose shareholders approved the Reorganization Agreement would
be reorganized into Balanced Fund. A Fund not approving the Reorganization
Agreement that they are considering would continue to operate as a separate
entity.
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<PAGE>
AFTER CAREFUL CONSIDERATION, THE BOARD OF TRUSTEES OF THE PILGRIM MAYFLOWER
TRUST, ON BEHALF OF THE INCOME & GROWTH FUND, AND THE BALANCE SHEET
OPPORTUNITIES FUND EACH UNANIMOUSLY APPROVED THE PROPOSED REORGANIZATION. THE
BOARDS RECOMMEND THAT YOU VOTE "FOR" THE PROPOSED REORGANIZATION.
In considering whether to approve the Reorganization, you should note that:
* The Funds have substantially similar investment objectives. Balanced
Fund and Income & Growth Fund seek current income balanced with
capital appreciation. Balance Sheet Opportunities Fund seeks income,
with a secondary objective of capital appreciation. Each of the Funds
combines the use of debt and equity investing to seek its objectives.
However, the strategies by which each Fund seeks to achieve its
objectives differ in some respects. A more complete discussion of the
differences in the investment strategies of each Fund is contained in
the section of the Proxy Statement/Prospectus entitled "Investment
Objectives and Policies."
* The proposed Reorganization offers actual or potential reductions in
total operating expenses for shareholders of the Target Funds. This
chart compares the current operating expenses, management fees, and
distribution and shareholder service fees of the Funds.
<TABLE>
<CAPTION>
Operating Management Distribution and
Expenses(2) Fees(3) Shareholders Fees(3)
---------------------------- ----------- ----------------------------
Class of Shares A B C T All Classes A B C T
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund (1) 1.35% 2.00% 2.00% N/A 0.75% 0.35% 1.00% 1.00% N/A
Income & Growth Fund 1.40% 2.12% 2.09% N/A 0.75%(4) 0.30% 1.00% 1.00% N/A
Balance Sheet
Opportunities Fund 1.52% 2.24% 2.22% 1.94% 0.65% 0.30% 1.00% 1.00% 0.75%
</TABLE>
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(1) Pilgrim Investments, Inc. limits the expenses of the Balanced Fund pursuant
to the terms of an Expense Limitation Agreement. See "Comparison of Fees
and Expenses - Expense Limitation Arrangements" for more information.
(2) Operating Expenses are expressed as a ratio of expenses to average daily
net assets ("expense ratio"), and reflect ordinary operating expenses for
the year ended June 30, 1999 (as adjusted for contractual changes).
(3) Fees are expressed as an annual rate of average daily net assets.
(4) Income & Growth Fund's management fee is subject to a breakpoint fee
structure, which is described below under the caption "Comparison of Fees
and Expenses."
Combining the Funds should lower expenses further because of economies of
scale realized from a larger asset base. This chart shows an estimate of the
likely expenses after the Reorganization.
<TABLE>
<CAPTION>
Operating Management Distribution and
Expenses(2) Fees(3) Shareholders Fees(3)
---------------------------- ----------- -----------------------------
Class of Shares A B C T All Classes A B C T
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Combined Funds
(pro forma) 1.32% 1.97% 1.97% 1.72% 0.75% 0.35% 1.00% 1.00% 0.75%
</TABLE>
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<PAGE>
* An expense limitation arrangement is in place for Balanced Fund, under
which Pilgrim Investments limits the ordinary operating expenses borne
by the Fund. Without this expense limitation arrangement, the expense
ratio for each Class of Balanced Fund (as adjusted for contractual
changes) would have been higher than the expense ratio for the same
Class of the Target Funds. For the fiscal year ended June 30, 1999,
for example, the expense ratio for Class A shares would have been
1.61% for Balanced Fund compared to 1.40% for Income & Growth Fund and
1.47% for Balance Sheet Opportunities Fund. This information and
similar information for the other Classes is shown in the table under
the caption "Annual Fund Operating Expenses." Pilgrim Investments has
committed to maintain the current expense limitation arrangement for
Balanced Fund through at least October 31, 2001.
* 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 Balanced Fund. Pilgrim
Advisors, Inc. ("Pilgrim Advisors") (formally Northstar Investment
Management Corporation), 40 North Central Avenue, Suite 1200, Phoenix,
Arizona 85004, is the investment manager for Income & Growth Fund and
Balance Sheet Opportunities 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 Balanced and Balance Sheet Opportunities Funds are the same,
although different portfolio managers manage the Income & Growth Fund.
PURCHASE, REDEMPTION, AND EXCHANGE INFORMATION. The purchase, redemption
and exchange provisions and privileges for the Target Funds and Balanced Fund
are currently the same. Prior to November 1, 1999, there were some differences
in these provisions, including differences in sales loads. As a result, the
contingent deferred sales load structure of the Target Funds shares held by you
prior to November 1, 1999 will apply to the Balanced Fund shares issued to you
in the Reorganization. In addition, you will receive credit for the period that
you held your Target Funds shares for purposes of calculating any contingent
deferred sales charges and determining conversion rights with regard to Balanced
Fund shares you acquire in the Reorganization. Similar to Class B shares of the
Target Funds, Class B shares of Balanced Fund will convert to Class A eight
years after their purchase date.
Purchases of shares of Balanced Fund after the Reorganization will be
subject to the sales load structure and conversion characteristics of Balanced
Fund. For additional information on purchase, redemption and exchange
procedures, see "Comparison of Fees and Expenses" and "Appendix B - Additional
Information Regarding Balanced Fund."
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 following chart compares the investment objectives of the Funds.
Balance Sheet
Balanced Fund Income & Growth Fund Opportunities Fund
------------- -------------------- ------------------
Long-term capital Current income and capital Income with a secondary
appreciation and appreciation. objective of capital
current income. appreciation.
The following chart and text compares and describes the types of primary
investment strategies that may be that may be used by the Funds.
Income & Balance Sheet
Balanced Fund Growth Fund Opportunities Fund
------------- ----------- ------------------
Debt Securities X X X
Equity Securities X X X
High Yield
Debt Securities X X
Foreign Securities X X
GENERAL
Balanced Fund:
* Primarily invests in a blend of equity and debt securities with an
emphasis on overall total return.
Income & Growth Fund:
* Primarily invests in dividend paying equity securities, convertible
securities, and investment grade debt securities.
Balance Sheet Opportunities Fund:
* Primarily invests in domestic debt and equity securities.
* Adviser reviews various factors relating to an issuer, especially its
financial statements, to determine whether debt or equity securities
offer the best potential to meet the Fund's investment objective.
-5-
<PAGE>
DEBT SECURITIES
Balanced Fund:
* Invests 40% to 60% (target is 50%) of its assets in debt securities of
any maturity issued by corporations, other business entities, the U.S.
Government and its agencies and instrumentalities, and government
sponsored enterprises.
* May invest up to 35% of its net assets in zero coupon securities.
* May invest up to 10% of its assets in other investment companies that
invest in secured floating rate loans, including up to 5% of its
assets in Pilgrim Prime Rate Trust, a closed-end investment company
advised by Pilgrim Investments.
Income & Growth Fund:
* Invests at least 65% of its total assets in income-producing
securities, which may include debt securities, convertible securities,
preferred securities, and equity securities that normally pay
dividends.
Balance Sheet Opportunities Fund:
* Invests at least 51% of its total assets in income-producing
securities, which may include debt securities, convertible securities,
preferred securities, and equity securities that normally pay
dividends.
* May invest in pay-in-kind securities and discount obligations,
including zero coupon securities.
EQUITY SECURITIES
Balanced Fund:
* Remainder of its assets invested in equity securities of large
companies (over $5 billion) that the adviser believes are leaders in
their industries. Adviser emphasizes a value approach, and seeks
securities whose prices in relation to projected earnings are believed
to be reasonable in comparison to the market. May invest to a limited
degree in companies that have a market capitalization between $1
billion and $5 billion.
Income & Growth Fund:
* Generally invests no more than 30% of its assets in convertible
securities.
* Historically, has invested primarily in equity securities.
Balance Sheet Opportunities Fund:
* May invest in common stocks, preferred stocks, convertible securities
and warrants, and other stock purchase rights.
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<PAGE>
HIGH YIELD DEBT SECURITIES
Balanced Fund:
* May invest up to 35% of its net assets in high yield debt securities
(junk bonds) rated below investment grade by a nationally recognized
statistical rating agency, or of comparable quality if unrated. There
is no minimum credit quality for the high yield debt securities in
which it may invest.
Balance Sheet Opportunities Fund:
* May invest up to 50% of its assets in debt securities rated as low as
"B" by Moody's or S&P (junk bonds).
FOREIGN SECURITIES
Balanced Fund:
* May invest up to 20% of its total assets in foreign securities.
Balance Sheet Opportunities Fund:
* May invest up to 20% of its net assets in foreign issuers, but only
10% of its net assets can be in securities that are not listed on a
U.S. securities exchange.
Following the Reorganization and in the ordinary course of business as a
mutual fund, certain holdings of Income & Growth Fund and/or Balance Sheet
Opportunities Fund that were transferred to Balanced Fund in connection with the
Reorganization may be sold. Such sales may result in increased transaction costs
for Balanced Fund, and the realization of taxable gains or losses.
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<PAGE>
COMPARISON OF PORTFOLIO CHARACTERISTICS
The following table compares certain characteristics of the portfolios of
the Funds as of June 30, 1999:
<TABLE>
<CAPTION>
INCOME & BALANCE SHEET
BALANCED FUND GROWTH FUND OPPORTUNITIES FUND
------------- ----------- ------------------
<S> <C> <C> <C>
Net Assets 38,296,244 115,276,196 43,634,265
Number of Holdings 147 88 67
Average Credit Quality of Debt
Securities A2 A2 Baa3
Ratio of net income to average
net assets (for 12 months
ending 06/30/99) 1.75% 1.40% 3.11%
Portfolio Turnover Rate 63% 73% 4%
As a percentage of Net Assets:
Equity Securities 48% 69% 62%
Foreign Securities 0% 2% 0%
Convertible Securities 0% 0% 3%
Preferred Securities 0% 0% 5%
Mortgage-Related Securities 6% 2% 0%
U.S. Government Securities 12% 0% 0%
Domestic Corporate Bonds 14% 23% 10%
Foreign Corporate Bonds 3% 0% 8%
Convertible Corporate Bonds 0% 0% 6%
Warrants 0% 0% 1%
Investment Trusts 7% 0% 0%
Short-term Investments 10% 4% 5%
Top 5 Industries Investment Trust 7.7% Financial 15.7% Consumer Products 17.1%
(as a % of Net Assets) Financial 7.1% Consumer Products 12.4% Broadcasting 13.9%
Communications 6.8% Energy 12.0% Communications 8.8%
Treasury Notes 6.7% Communications 10.6% Entertainment 5.8%
Mortgage Backed 5.9% Capital Goods 6.6% Energy 5.5%
Top 10 Holdings
(as a % of Net Assets) Pilgrim Prime Halliburton Co. 4.7% EchoStar
Rate Trust 4.7% Avon Products, Inc. 3.0% Communications 10.5%
UST 5.75 8/03 3.0% MCI Communications, Inc. 2.5% Intracel Corp. 3.9%
FHLMC E74572 2.9% First Union Corp. 2.3% Comcast Corp. 3.7%
UST 5.50 8/28 2.4% IES Utilities Inc. 2.3% Clear Channel
Blackrock Strategic International Business Communications 3.7%
Term Trust 1.6% Machines 2.2% CBS Radio, Inc. 3.7%
FHLMC E00659 1.4% Fleet Financial Group, Paxson Communications
Blackrock 2001 Inc. 2.2% Corp. 3.6%
Term Trust 1.4% General Motors Star Choice
ICG Services 0.8% Acceptance Corp. 2.1% Communications 3.6%
Warner Lambert Co 0.8% Delphi Automotive Time Warner, Inc. 3.4%
Hewlett Packard 0.8% Systems Corp. 1.7% Chancellor Media
Baker Hughes, Inc. 1.6% Corp. 3.3%
Unisite, Inc. 3.2%
</TABLE>
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<PAGE>
RELATIVE PERFORMANCE
The following table shows, for each calendar year since 1994, the average
annual total return for (a) Class A Shares of Balanced Fund, (b) Class A shares
of each of the Target Funds, (c) the Lipper Balanced Fund Average and (d) a
composite of securities indices. Performance of the Funds in the table does not
reflect the deduction of sales loads. The "Composite Index" has an inherent
performance advantage over the Funds, since it has no cash in its portfolio and
it incurs 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.
BALANCE SHEET LIPPER
CALENDAR YEAR BALANCED INCOME & OPPORTUNITIES BALANCED COMPOSITE
PERIOD ENDED FUND(1) GROWTH FUND(2) FUND(3) FUND INDEX(4) INDEX(5)
- ------------ -------- -------------- ------------- ------------- --------
12/31/94 (6.29)% (3.56)% -- (2.05)% (0.59)%
12/31/95 23.44% 21.33% -- 24.89% 30.16%
12/31/96 16.39% 15.23% 10.54% 13.05% 14.90%
12/31/97 20.50% 15.56% 24.31% 20.30% 23.90%
12/31/98 23.34% 5.76% 5.19% 15.09% 20.90%
9/30/99(6) 2.58% 1.15% 7.34% 1.77% 1.48%
- ----------
(1) Prior to May 24, 1999, a different adviser managed Balanced Fund and the
Fund's policies targeted an allocation of 60% of net assets to equities
rather than the current 50%.
(2) Income & Growth Fund commenced operations on November 8, 1993.
(3) Balance Sheet Opportunities Fund commenced operations on June 5, 1995.
(4) The Lipper Balanced Fund Index measures the performance of balanced funds
(funds that seek income balanced with capital appreciation).
(5) The Composite Index consists of 60% S&P's 500 Composite Stock Price Index
and 40% Lehman Brothers Government/Corporate Bond Index. The Composite
Index has an inherent performance advantage over the Funds since it has no
cash in its portfolio, imposes no sales charges and incurs no operating
expenses. An investor cannot invest directly in an index.
(6) Not annualized.
COMPARISON OF THE RISKS WITH INVESTING IN THE FUNDS
Because the Funds share similar investment objectives and policies, many of
the risks of investing in Balanced Fund are substantially similar to the risks
of investing in the Target Funds. The principal risk of an investment in each of
the Funds is fluctuation in the net asset value of the Fund's shares. Market
conditions, financial conditions of issuers represented in the portfolio,
investment policies, portfolio management, and other factors affect such
fluctuations.
The Target Funds and Balanced Fund are subject to risks associated with
investing in debt and equity securities, including market risks, changes in
interest rates, credit risks, prepayment risks, liquidity risks, price
volatility risks, market trends risks, risk of investing in foreign securities,
and risks of using derivatives, as described below.
* The value of each Fund's investments may fall as the prices of its
investments go up or down. The equity portion of each Fund's portfolio is
subject to market, issuer and other risks, and their values may go up or
down, sometimes rapidly and unpredictably. Market risk is the risk that
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<PAGE>
securities may decline in value due to factors affecting securities markets
generally or particular industries. Issuer risk is the risk that the value
of a security may decline for reasons relating to the issuer, such as
changes in the financial condition of the issuer. While equities may offer
the potential for greater long-term growth than most debt securities, they
generally have higher volatility. Since the Balanced Fund normally has a
somewhat smaller commitment to equities than the Income & Growth Fund and
the Balance Sheet Opportunities Fund, it will have somewhat less exposure
to the risks of the equities markets, and somewhat less potential for
growth from equities.
* From time to time, the stock market may not favor the large company value
securities in which each of the Funds may invest. Rather, the market could
favor growth-oriented stocks or small company stocks, or may not favor
equities at all. Each Fund is subject to this risk.
* With respect to the fixed income (debt) portion of each Fund's portfolio,
the value of those investments may fall when interest rates rise. Each of
the Funds may be particularly sensitive to changes in interest rates
because they invest in debt securities with intermediate and long terms to
maturity. Debt securities with longer durations tend to be more sensitive
to changes in interest rates, usually making them more volatile than debt
securities with shorter durations. Each of the Funds may invest in zero
coupon securities which are particularly sensitive to changes in interest
rates. Since the Balanced Fund normally has a somewhat greater commitment
to debt securities than the Income & Growth Fund and the Balance Sheet
Opportunities Fund, it will have somewhat greater exposure to the risks of
investing in debt securities, including changes in interest rates and
credit risks, as described below.
* Each Fund could lose money if the issuer of a debt security is unable to
meet its financial obligations or goes bankrupt. Generally, Balanced Fund
and Balance Sheet Opportunities Fund normally are subject to more credit
risk than other income funds, such as Income & Growth Fund, because they
may invest in high yield debt securities, which are considered
predominantly speculative with respect to the issuer's continuing ability
to meet interest and principal payments. This is especially true during
periods of economic uncertainty or economic downturns. The debt portion of
the Income & Growth Fund, on the other hand, normally is subject to less
credit risk than other income funds that emphasize corporate bonds because
its debt investments are principally in securities issued or guaranteed by
the U.S. government, its agencies and governments sponsored enterprises, or
other high quality money market instruments. Obligations of some U.S.
government agencies, such as the Federal National Mortgage Association and
the Federal Home Loan Mortgage Corporation, are not backed by the full
faith and credit of the U.S. Government. Consequently, there are 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 foreign securities (although this is not a
principal strategy of the Income & Growth Fund) which may be riskier than
U.S. investments for many reasons, including changes in currency exchange
rates, unstable political and economic conditions, a lack of adequate
company information, differences in the way securities markets operate,
less secure foreign banks or securities depositories than those in the
U.S., and foreign controls on investment.
-10-
<PAGE>
* The high yield securities in which Balanced Fund and Balance Sheet
Opportunities Fund may invest may be less liquid than higher quality
investments. These Funds could lose money if they cannot sell a security at
the time and price that would be most beneficial to these Funds. Similarly,
each of these Fund's investments in foreign securities could be less liquid
than investments in U.S. securities.
* Each of the Funds may employ the use of derivative instruments. Derivatives
are subject to the risk of changes in the market price of the security,
credit risk with respect to the counterparty to the derivatives instrument,
and the risk of loss due to changes in interest rates. The use of
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 any 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.
EQUITY SECURITIES
Each of the Funds invests a portion of its assets in equity securities and
securities with equity characteristics, such as common stocks, preferred stocks,
convertible securities and warrants and other stock purchase rights. Balanced
Fund's equity investments are normally in large companies that Pilgrim
Investments believes are leaders in their industries. Pilgrim Investments
considers a company to be a large company if it has market capitalization of
over $5 billion. Balanced Fund may also invest to a limited degree in companies
that have a market capitalization between $1 billion and $5 billion. For
Balanced Fund, Pilgrim Investments emphasizes a value approach, and seeks
securities whose prices in relation to projected earnings are believed to be
reasonable in comparison to the market. Income & Growth Fund normally invests in
equity securities of larger companies that have historically paid dividends.
HIGH YIELD SECURITIES
Balanced Fund and Balance Sheet Opportunities Fund may invest in junk
bonds, which are high yield/high risk debt securities that are rated below
investment grade by a nationally recognized statistical rating organization or
of comparable quality if not rated. Balanced Fund may invest up to 35% of its
assets in junk bonds. There is no minimum credit quality for the junk bonds in
which Balanced Fund may invest. Balance Sheet Opportunities Fund may hold up to
50% of its assets in junk bonds rated as low as B by Moody's or S&P. Income &
Growth Fund does not invest in junk bonds as a principal investment strategy.
-11-
<PAGE>
Junk bonds generally provide greater income and increased opportunity for
capital appreciation than higher quality debt securities, but they also
typically entail greater potential credit risk and price volatility. Junk bonds
are not considered to be investment grade, and are regarded as predominantly
speculative with respect to the issuing company's continuing ability to meet
principal and interest payments. The prices of junk bonds tend to be more
sensitive to adverse economic downturns or individual corporate developments
than higher-rated investments. The market prices of junk bonds structured as
zero-coupon or pay-in-kind securities may be affected to a greater extent by
interest rate changes. Junk bonds are generally less liquid than higher grade
bonds. Less liquidity could adversely affect the price at which a Fund could
sell a junk bond, and could adversely affect the daily net asset value of the
Fund's shares. At times of less liquidity, it may be more difficult to value
junk bonds.
MORTGAGE-RELATED SECURITIES AND ASSET-BACKED SECURITIES
Each of the Funds may invest in mortgage-related securities. Investments in
mortgage-related securities involve certain risks. Like other fixed income
securities, when interest rates rise, the value of a mortgage-backed security
generally will decline, and may decline more rapidly as the underlying mortgages
are less likely to be prepaid; however, when interest rates are declining, the
value of mortgage-backed securities with prepayment features may not increase as
much as other fixed income securities. The mortgage loans underlying a
mortgage-backed security will be subject to normal principal amortization, and
may be prepaid prior to maturity due to the sale of the underlying property, the
refinancing of the loan, or foreclosure. The rate of prepayments on underlying
mortgages will affect the price and volatility of a mortgage-related security,
and may have the effect of shortening or extending the effective maturity of the
security beyond what was anticipated at the time of the purchase. Unanticipated
rates of prepayment on underlying mortgages 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.
Balanced Fund also may invest in non-mortgage-related asset-backed
securities which include, but are not limited to, interests in pools of
receivables, such as credit card and accounts receivables and motor vehicle and
other installment purchase obligations and leases. Interests in these pools are
not backed by the U.S. Government and may or may not be secured. The credit
characteristics of asset-backed securities differs in a number of respects from
those of traditional debt securities. Asset-backed securities generally do not
have the benefit of a security interest in collateral that is comparable to
other debt obligations, and there is a possibility that recoveries on
repossessed collateral may not be available to support payment on these
securities.
FOREIGN SECURITIES
Balanced Fund may invest up to 20% of its total assets in foreign
securities. Income & Growth Fund and Balance Sheet Opportunities Fund may invest
up to 20% of their net assets in foreign issuers, but only 10% of their net
assets may be invested in foreign securities that are not listed on a U.S.
securities exchange.
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<PAGE>
There are risks in owning foreign securities, including: (i) fluctuations
in currency exchange rates; (ii) devaluation of currencies; (iii) political or
economic developments and the possible imposition of currency exchange blockages
or other foreign governmental laws or restrictions; (iv) reduced availability of
public information concerning issuers; (v) accounting, auditing and financial
reporting standards or other regulatory practices and requirements that are not
uniform when compared to those applicable to U.S. companies; and (vi)
limitations on foreign ownership of equity securities. Also, securities of many
foreign companies may be less liquid and the prices more volatile than those of
domestic companies. With certain foreign countries, there is the possibility of
expropriation, nationalization, confiscatory taxation and limitations on the use
or removal of funds or other assets of the Funds, including the withholding of
dividends.
ZERO COUPON SECURITIES
Each of the Funds may invest in zero coupon securities issued or guaranteed
by the U.S. Government and its agencies and instrumentalities, including zero
coupon Treasury securities which consist of Treasury bills or stripped interest
or principal components of U.S. Treasury bonds or notes. Balanced Fund's
investments in these securities is limited to 35% of its net assets. Zero coupon
securities are sold at (a usually substantial) discount from face value and
redeemed at face value at their maturity date without interim cash payments of
interest and 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.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
The Funds may enter into reverse repurchase agreement transactions. Such
transactions involve the sale of securities held by the particular Fund, with an
agreement that the Fund will repurchase such securities at an agreed upon price
and date. At the time a Fund enters into a reverse repurchase agreement, the
Fund will place in a segregated custodial account cash and/or liquid assets
having a dollar value equal to the repurchase price. Reverse repurchase
agreements, together with other permitted borrowings, may constitute up to 33
1/3% of the Fund's 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.
The Funds also may enter into dollar roll transactions, which involve the
sale by the particular Fund with an agreement that the Fund will repurchase
substantially similar securities at an agreed upon price and date. A dollar roll
transaction, the mortgage securities that are repurchased may bear the same
interest rate as those sold, but generally will be collateralized by different
pools of mortgages with different prepayment histories. During the period
between the sale and repurchase, the Fund will not be entitled to receive
interest and principal payments on the securities sold. Proceeds of the sale
will be invested in short-term instruments, and the income from these
-13-
<PAGE>
investments, together with any additional fee income received on the sale, could
generate income for the Fund exceeding the yield on the sold security. When the
Funds enter into a dollar roll transaction, cash and/or liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
repurchased, are segregated with its custodian at the trade date. Balanced Fund
will not enter into dollar-roll transactions if more than 15% of its net assets
would be segregated to cover such contracts.
Whether a reverse repurchase agreement or dollar-roll transaction produces
a gain for a Fund depends upon the "costs of the agreements" (e.g., a function
of the difference between the amount received upon the sale of its securities
and the amount to be spent upon the purchase of the same or "substantially the
same" security) and the income and gains of the securities purchased with the
proceeds received from the sale of the mortgage security. If the income and
gains on the securities purchased with the proceeds of the agreements exceed the
costs of the agreements, then a Fund's net asset value will increase faster than
otherwise would be the case; conversely, if the income and gains on such
securities purchased fail to exceed the costs of the structure, net asset value
will decline faster than otherwise would be the case. Reverse repurchase
agreements and dollar-roll transactions, as leveraging techniques, may increase
a Fund's yield in the manner described above; however, such transactions also
increase a Fund's risk to capital and may result in a loss of principal.
ILLIQUID SECURITIES
Each of the Funds may invest up to 15% of their net assets in illiquid
securities, but has no percentage limit on restricted securities that are
liquid. 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.
USE OF DERIVATIVES
Derivatives are financial instruments whose performance is derived, at
least in part, from the performance of an underlying asset or assets.
Derivatives 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 (described above) may also be considered derivatives. Balanced Fund
may use options, futures contracts and interest rate and currency swaps as
hedging techniques. Income & Growth Fund and Balance Sheet Opportunities Fund
may invest in exchange-traded or over-the-counter derivatives, including
options, futures contracts, options on futures, and forward contracts for a
variety of purposes.
A risk of using financial futures contracts for hedging purposes is that
the adviser might imperfectly judge the market's direction, so that the hedge
might not correlate to the market's movements and may be ineffective.
Furthermore, if a Fund buys a futures contract to gain exposure to securities,
the Fund is exposed to the risk of change in the value of the underlying
securities and the futures contract.
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<PAGE>
CORPORATE DEBT SECURITIES
Each of the Funds may invest in corporate debt securities. Corporate debt
securities are subject to the risk of the issuer's inability to meet principal
and interest payments on the obligation (credit risk) and may also be subject to
price volatility due to such factors as interest rate sensitivity, market
perception of the credit-worthiness of the issuer and general market liquidity
(market risk). When interest rates decline, the value of the debt securities can
be expected to rise, and when interest rates rise, the value of those securities
can be expected to decline. Debt securities with longer maturities tend to be
more sensitive to interest rate movements than those with shorter maturities.
FLOATING OR VARIABLE RATE INSTRUMENTS
Each of the Fund may purchase floating or variable rate bonds, which
normally provide that the holder can demand payment of the obligation on short
notice at par with accrued interest. Floating or variable rate instruments
provide for adjustments in the interest rate at specified intervals (weekly,
monthly, semiannually, etc.).
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 the shareholders of the Funds to realize economies of scale. For
further information on the fees and expenses of the Balanced Fund, see "Appendix
B Additional Information Regarding Pilgrim Balanced Fund."
OPERATING EXPENSES
The operating expenses of Balanced Fund, expressed as a ratio of expenses
to average daily net assets ("expense ratio") (as adjusted for contractual
changes), are lower than those of the Target Funds giving effect to the expense
limitation agreement described below.
* For the year ending June 30, 1999, the net expenses for Class A, Class
B and Class C shares of Balanced Fund are 0.05%, 0.12% and 0.12% lower
than those of the same classes of the Income & Growth Fund.
* For the year ending June 30, 1999, the net expenses for Class A, Class
B and Class C shares of Balanced Fund are 0.17%, 0.24% and 0.22% lower
than those of the same classes of the Balance Sheet Opportunities
Fund.
MANAGEMENT FEE
The Income & Growth Fund and the Balanced Fund each have a management fee
of 0.75%. Unlike the Balanced Fund, however, the Income & Growth Fund's
management fee is subject to a breakpoint fee structure. The Income & Growth
Fund's management fee of 0.75% is reduced on assets in excess of $250 million
based on the following schedule:
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<PAGE>
0.75% on the first $250 million
0.70% on the next $250 million
0.65% on the next $250 million
0.60% on the next $250 million
0.55% on assets over $1 billion
The Balance Sheet Opportunities Fund's management fee is 0.65%.
DISTRIBUTION AND SERVICE FEES
The distribution and service (12b-1) fees of the Target Funds are the same
as those of the Balanced Fund, except that the 12b-1 fees for the Class A Shares
of the Balanced Fund are 0.05% higher than those of the Target Funds.
As mentioned above, an expense limitation arrangement is in place for
Balanced Fund, under which Pilgrim Investments limits the ordinary operating
expenses borne by that Fund. Without this expense limitation arrangement, the
expense ratio for each Class of Balanced Fund (as adjusted for contractual
changes) would have been higher than the expense ratio for the same Class of the
Target Funds. For the year ended June 30, 1999, for example, the expense ratio
for Class A shares would have been 1.61% for Balanced Fund compared to 1.45% for
Income & Growth Fund and 1.52% for Balance Sheet Opportunities Fund. This
information and similar information for the other Classes is shown in the table
below entitled, "Annual Fund Operating Expenses." The current expense limitation
agreement for the Balanced Fund provides that it will remain in effect through
at least October 31, 2001.
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 annualized based upon the operating expenses incurred by the Class
A, Class B, Class C and Class T Shares for the period ended June 30, 1999 (as
adjusted for contractual changes). PRO FORMA fees show estimated fees of the
Balanced Fund after giving effect to the proposed reorganization.
-16-
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets,
shown as a ratio of expenses to average daily net assets)(1)
<TABLE>
<CAPTION>
Distribution
and
Shareholder
Servicing Total Fund Fee Waiver
Management (12b-1) Other Operating by Net Fund
Fees Fees(2) Expenses Expenses Adviser(3) Expenses
---------- ----------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Balanced Fund 0.75% 0.35% 0.51% 1.61% (0.26)% 1.35%
Income & Growth Fund 0.75% 0.30% 0.35% 1.40% -- --
Balance Sheet Opportunities Fund 0.65% 0.30% 0.57% 1.52% -- --
Pro Forma 0.75% 0.35% 0.22% 1.32% -- 1.32%
CLASS B
Balanced Fund 0.75% 1.00% 0.51% 2.26% (0.26)% 2.00%
Income & Growth Fund 0.75% 1.00% 0.37% 2.12% -- --
Balance Sheet Opportunities Fund 0.65% 1.00% 0.59% 2.24% -- --
Pro Forma 0.75% 1.00% 0.22% 1.97% -- 1.97%
CLASS C
Balanced Fund 0.75% 1.00% 0.51% 2.26% (0.26)% 2.00%
Income & Growth Fund 0.75% 1.00% 0.34% 2.09% -- --
Balance Sheet Opportunities Fund 0.65% 1.00% 0.57% 2.22% -- --
Pro Forma 0.75% 1.00% 0.22% 1.97% -- 1.97%
CLASS T
Balance Sheet Opportunities Fund
(only) 0.65% 0.75% 0.54% 1.94% -- --
Pro Forma 0.75% 0.75% 0.22% 1.72% -- 1.72%
</TABLE>
- ----------
(1) The Balanced Fund's fiscal year ends on June 30 while the Income & Growth
Fund's fiscal year ends on October 31 and the Balance Sheet Opportunities
Fund's fiscal year ends on December 31. To compare the expenses of the
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, as
adjusted for contractual changes.
(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) Pilgrim Investments has entered into an expense limitation agreement that
limits expenses (excluding interest, taxes, brokerage and extraordinary
expenses) for Balanced Fund to 1.35%, 2.00%, 2.00% and 1.75% for Class A,
Class B, Class C and Class T shares, respectively, subject to possible
later recoupment. Pilgrim Investments has agreed that the expense
limitations shown in the table will apply to Balanced Fund until at least
October 31, 2001.
EXAMPLE
This example is intended to help you compare the cost of investing in the
each of the Funds. The example assumes that you invest $10,000 in each Fund for
the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that each 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 each period shown; your actual costs may be
higher or lower.
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<PAGE>
BALANCED FUND INCOME & GROWTH FUND
Class Class
------------------------------- -------------------------------
A B C T A B C T
------ ------ ------ ------ ------ ------ ------ ------
1 year $ 705 $ 703 $ 303 N/A $ 709 $ 715 $ 312 N/A
3 years 1,005 955 655 N/A 993 964 655 N/A
5 years 1,353 1,361 1,161 N/A 1,297 1,339 1,124 N/A
10 years 2,334 2,389* 2,554 N/A 2,158 2,268* 2,421 N/A
BALANCE SHEET PRO FORMA:
OPPORTUNITIES FUND THE FUNDS COMBINED**
Class Class
------------------------------- -------------------------------
A B C T A B C T
------ ------ ------ ------ ------ ------ ------ ------
1 year $ 721 $ 727 $ 325 $ 597 $ 702 $ 700 $ 300 $ 575
3 years 1,028 1,000 694 809 969 918 618 742
5 years 1,356 1,400 1,190 1,047 1,257 1,262 1,062 933
10 years 2,283 2,394* 2,554 2,156* 2,074 2,128* 2,296 1,925*
You would pay the following expenses if you did not redeem your shares:
BALANCED FUND INCOME & GROWTH FUND
Class Class
------------------------------- -------------------------------
A B C T A B C T
------ ------ ------ ------ ------ ------ ------ ------
1 year $ 705 $ 203 $ 203 N/A $ 709 $ 215 $ 212 N/A
3 years 1,005 655 655 N/A 993 664 655 N/A
5 years 1,353 1,161 1,161 N/A 1,297 1,139 1,124 N/A
10 years 2,334 2,389* 2,554 N/A 2,158 2,268* 2,421 N/A
BALANCE SHEET PRO FORMA:
OPPORTUNITIES FUND THE FUNDS COMBINED**
Class Class
------------------------------- -------------------------------
A B C T A B C T
------ ------ ------ ------ ------ ------ ------ ------
1 year $ 721 $ 227 $ 225 $ 197 $ 702 $ 200 $ 200 $ 175
3 years 1,028 700 694 609 969 618 618 542
5 years 1,356 1,200 1,190 1,047 1,257 1,062 1,062 933
10 years 2,283 2,394* 2,554 2,156* 2,074 2,128* 2,296 1,925*
- ----------
* The ten year calculations for Class B and Class T Shares assume conversions
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
Pilgrim Investments has entered into an expense limitation agreement with
respect to Balanced Fund, pursuant to which Pilgrim Investments has agreed to
waive or limit its fees and to assume other expenses through at least October
31, 2001 so that the total annual ordinary operating expenses of the Fund
(excluding interest, taxes, brokerage commissions, extraordinary expenses such
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<PAGE>
as litigation, other expenses not incurred in the ordinary course of the Fund's
business, expenses of any counsel or other persons or services retained by the
Fund's trustees who are not "interested persons" of Pilgrim Investments) do not
exceed 1.35%, 2.00%, 2.00% and 1.75% for Class A, B, C and T shares,
respectively. Balanced Fund will in later years reimburse Pilgrim Investments
for fees deferred or other expenses paid during the previous 36 months, but only
if, after such reimbursement, the operating expenses for the Fund are less than
the percentage limitation set forth above for any such year.
GENERAL INFORMATION
Class A, Class B, Class C and Class T shares of the Balanced Fund 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 the Income & Growth Fund or the Balance Sheet Opportunities Fund held by that
shareholder immediately prior to the Reorganization.
In addition, the period that the shareholder held shares of the Target
Funds will be included in the holding period of the Balanced Fund shares for
purposes of calculating any contingent deferred sales charge. Similarly, Class B
and Class T shares of the Balanced Fund 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 the Target Funds were purchased by the shareholder.
Purchases of shares of the Balanced Fund after the Reorganization will be
subject to the sales load structure described in the table below for the
Balanced Fund. This is the same sales load structure that is currently in effect
for the Target Funds.
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) 5.75(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%
</TABLE>
Neither the Balanced Fund nor the Target Funds have 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.
SPECIAL RULES FOR SHARES OF THE INCOME & GROWTH FUND AND THE BALANCE SHEET
OPPORTUNITIES FUND PURCHASED PRIOR TO NOVEMBER 1, 1999
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<PAGE>
Prior to November 1, 1999, the contingent deferred sales charge on
purchases of Class A shares of Target Funds in excess of $1 million was
different than the contingent deferred sales charge on similar purchases of the
Balanced Fund. Shareholders of the Target Funds 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 the Target Funds was different than the
contingent deferred sales charge on similar purchases of the Balanced Fund.
Shareholders of Target Funds 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:
Years After CDSC On Shares
Purchase Being Sold
-------- --------------------------
11/01/1999 Before
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 -- --
ADDITIONAL INFORMATION ABOUT BALANCED FUND
INVESTMENT PERSONNEL
The following individuals share responsibility for the day-to-day
management of Balanced Fund:
* G. David Underwood, Vice President and Senior Portfolio Manager for Pilgrim
Investments, has served as Senior Portfolio Manager of the equity portion
of Balanced Fund's assets since May 24, 1999. Prior to joining Pilgrim
Investments in December 1996, Mr. Underwood served as Director of Funds
Management for First Interstate Capital Management. Mr. Underwood's prior
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<PAGE>
experience includes a 10 year association with Integra Trust Company of
Pittsburgh where he served as Director of Research and Senior Portfolio
Manager.
* Kevin G. Mathews, Senior Vice President and Senior Portfolio Manager of
Pilgrim Investments, has served as Senior Portfolio Manager of the fixed
income portion of Balanced Fund's assets since May 24, 1999. Mr. Mathews
has served as Portfolio Manager of other funds within the Pilgrim group of
funds since 1995. Prior to joining Pilgrim Investments, Mr. Mathews was a
Vice President and Senior Portfolio Manager with Van Kampen American
Capital.
* Robert K. Kinsey, Vice President of Pilgrim Investments, has served as a
Portfolio Manager of the fixed income portion of Balanced Fund's assets
since May 24, 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 BALANCED FUND
The bar chart and table shown below provide an indication of the risks of
investing in Balanced Fund by showing (on a calendar year basis) changes in
Balanced Fund's annual total return from year to year and by showing (on a
calendar year basis) how Balanced Fund's average annual returns for one year,
five years and since inception compare to those of a composite of two
broad-based securities market indices and the Lipper Balanced Fund Average. The
information in the bar chart is based on the performance of the Class A shares
of Balanced Fund 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. Prior to May 24, 1999, a firm other than Pilgrim
Investments managed the Balanced Fund. The Fund's past performance is not
necessarily an indication of how the Fund will perform in the future.
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CALENDAR YEAR-BY-YEAR RETURNS*
1994 -6.29%
1995 23.44%
1996 16.39%
1997 20.50%
1998 23.34%
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* During the period shown in the chart, the Fund's best quarterly performance
was 14.44% for the quarter ended September 30, 1997, and the Fund's worst
quarterly performance was -5.88% for the quarter ended June 30, 1994. For
the period January 1, 1999 through September 30, 1999, the total return of
the Balanced Fund was 2.58%.
The table below shows what the average annual total returns of Balanced
Fund would equal if you averaged out actual performance over various lengths of
time, compared to the Composite Index, which is based on unmanaged indices, and
the Lipper Balanced Fund Average. The indices have an inherent performance
advantage over the Balanced Fund 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 Balanced Fund's performance reflected in the
table assumes the deduction of the maximum sales charge in all cases.
AVERAGE ANNUAL TOTAL RETURNS for the periods ended December 31, 1998
Since Since
Inception of Inception
Classes A and C of Class B
1 Year 5 Years (4/19/93) (5/31/95)
------ ------- --------- ---------
Balanced Fund Class A(1) 16.26% 13.52% 14.25% --
Balanced Fund Class B(2) 17.80% -- -- 18.75%
Balanced Fund Class C(3) 21.52% 14.14% 14.75% --
Composite Index(4) 20.93% 17.34% 15.27% 20.48%
Lipper Balanced Fund Average(5) 15.09% 13.87% 13.55% 16.93%
- ----------
(1) Reflects deduction of sales charge of 5.75%.
(2) Reflects deduction of deferred sales charge of 5% and 3% for the 1 year and
since inception returns, respectively.
(3) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(4) The Composite Index consists of 60% Standard & Poor's 500 Composite Stock
Price Index and 40% Lehman Brothers Government/Corporate Bond Index.
(5) The Lipper Balance Fund Average measures the performance of balanced funds
(funds that seek current income balanced with capital appreciation.
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The table below shows the performance of Balanced Fund if sales charges are
not reflected.
AVERAGE ANNUAL TOTAL RETURNS for the periods ended December 31, 1998
Since Since
Inception of Inception
Classes A and C of Class B
1 Year 5 Years (4/19/93) (5/31/95)
------ ------- --------- ---------
Balanced Fund Class A 23.35% 14.88% 15.44% --
Balanced Fund Class B 22.80% -- -- 19.28%
Balanced Fund Class C 22.49% 14.14% 14.75% --
Additional information about Balanced Fund is included in Appendix B to
this Proxy/Prospectus.
INFORMATION ABOUT THE REORGANIZATION
THE REORGANIZATION AGREEMENTS
The Reorganization Agreements provide for the transfer of all of the assets
and liabilities of the Target Funds to the Balanced Fund in exchange for Class
A, Class B, Class C and Class T shares in the Balanced Fund. The Target Funds
will distribute the shares of the Balanced Fund received in the exchange to the
shareholders of the Target Funds and then each of the Target Funds will be
liquidated.
After the Reorganization, each shareholder of each of the Target Funds will
own shares in the Balanced Fund having an aggregate value equal to the aggregate
value of each respective class of shares in either the Income & Growth Fund or
the Balance Sheet Opportunities Fund, as applicable, 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 the Target Funds will receive shares of the
corresponding Class of the Balanced Fund. In the interest of economy and
convenience, shares of the Balanced Fund generally will not be represented by
physical certificates.
In the event that the shareholders of only one of the Target Funds were to
approve the Reorganization, the Target Fund approving the Reorganization would
be reorganized into the Balanced Fund. The Target Fund not approving the
Reorganization may continue to operate as a separate entity.
Until the Closing, shareholders of the Target Funds will continue to be
able to redeem their shares. Redemption requests received after the Closing will
be treated as requests received by the Balanced Fund for the redemption of its
shares received by the shareholder in the Reorganization.
The obligations of the Funds under the Reorganization Agreements are
subject to various conditions, including approval of the shareholders of each of
the Target Funds. The Reorganization Agreements also require that all of 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
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effective the transactions contemplated by the Reorganization Agreement. The
Reorganization Agreements 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, please refer to the Reorganization Agreements
at Appendix A.
REASONS FOR THE REORGANIZATION
On October 29, 1999, the parent company of Pilgrim Advisors, formerly
Northstar Investment Management Corporation, acquired Pilgrim Capital
Corporation. Pilgrim Capital Corporation is 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 the Balanced Fund may
invest in substantially the same types of securities as the Target Funds, the
three Funds would be duplicative in the same group of funds. Therefore, it was
determined that the Funds should be reorganized in order to realize economic
efficiencies that would benefit the shareholders of each of the Funds by
spreading costs across a larger, combined asset base.
The proposed Reorganization was presented to the Boards of Trustees of the
Target Funds 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 the Target Funds, determined that the interests of the shareholders of the
Target Funds will not be diluted as a result of the proposed Reorganization, and
that the proposed Reorganization is in the best interests of the Target Funds
and their shareholders.
The Reorganization will allow the Target Funds' shareholders to continue to
participate in a professionally-managed portfolio which seeks to achieve its
objective with a balance of long-term capital appreciation and current income.
As Class A, Class B, Class C and Class T shareholders of the Balanced Fund,
these shareholders will continue to be able to exchange into other mutual funds
in the larger Pilgrim group of funds that offer the same class of shares in
which such shareholder is currently invested. A list of the current Pilgrim
group of funds, and their available classes, is attached as Appendix D.
BOARD CONSIDERATION
The Board of Trustees of the Pilgrim Mayflower Trust, on behalf of the
Income & Growth Fund, and the Balance Sheet Opportunities Fund, in recommending
the proposed transaction, considered a number of factors, including the
following:
(1) expense ratios and information regarding fees and expenses of the
Target Funds and the Balanced Fund, including the expense limitation
arrangements offered by Pilgrim Investments;
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<PAGE>
(2) elimination of duplication of costs, market confusion and
inefficiencies of having three similar funds;
(3) shareholders who purchased shares of the Target Funds prior to
November 1, 1999 would retain the sales charge structure in place
prior to that date;
(4) estimates that show that combining the Funds would result in lower
expense rations because of economies of scale;
(5) the Reorganization would not dilute the interests of the Target Funds'
current shareholders;
(6) the relative investment performance and risks of the Balanced Fund as
compared to the Target Funds;
(7) the similarity of Balanced Fund's investment objectives, policies and
restrictions with those of the Target Funds and the fact that the
Funds are duplicative within the overall group of funds;
(8) the tax-free nature of the Reorganization to the Target Funds and
their shareholders.
The Board of Trustees also considered the future potential benefits to
Pilgrim Investments in that its costs to limit the expenses of Balanced Fund are
likely to be reduced if the Reorganization is approved.
THE TRUSTEES OF THE PILGRIM MAYFLOWER TRUST, ON BEHALF OF INCOME & GROWTH
FUND, AND THE BALANCE SHEET OPPORTUNITIES FUND EACH RECOMMEND THAT SHAREHOLDERS
OF THE TARGET FUNDS APPROVE THE REORGANIZATION WITH THE BALANCED FUND.
TAX CONSIDERATIONS
The Reorganization is intended to qualify for Federal income tax purposes
as a tax-free reorganization under Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"). Accordingly, pursuant to this treatment, neither
the Target Funds nor their shareholders nor the Balanced Fund is expected to
recognize any gain or loss for federal income tax purposes from the transactions
contemplated by the Reorganization Agreement. As a condition to the Closing of
the Reorganization, the Funds will receive an opinion from the law firm of
Dechert Price & Rhoads to the effect that the Reorganization will qualify as a
tax-free reorganization for Federal income tax purposes. That opinion will be
based in part upon certain assumptions and upon certain representations made by
the Funds.
Immediately prior to the Reorganization, each Target Fund will pay a
dividend or dividends which, together with all previous dividends, will have the
effect of distributing to its shareholders all of that Target 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
Target Funds' shareholders.
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<PAGE>
As of ________ ___, 1999, Balanced Fund had accumulated capital loss
carryforwards in the amount of approximately $________. After the
Reorganization, these losses will be available to Balanced Fund to offset its
capital gains, although the amount of these losses which may offset Balanced
Fund's capital gains in any given year may be limited. As a result of this
limitation, it is possible that Balanced Fund may not be able to use these
losses as rapidly as Income & Growth Fund and Balance Sheet Opportunities Fund
might have, and part of these losses may not be useable at all. The ability of
Balanced Fund to absorb losses in the future depends upon a variety of factors
that cannot be known in advance, including the existence of capital gains
against which these losses may be offset. In addition, the benefits of any
capital loss carryforwards currently are available only to shareholders of
Income & Growth Fund and Balance Sheet Opportunities Fund, as applicable. After
the Reorganization, however, these benefits will inure to the benefit of all
shareholders of Balanced Fund.
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
Balanced Fund is a series of Pilgrim Mutual Funds, which is a Delaware
business trust. Pilgrim Mutual Funds also offers other series, which are not
involved in this Reorganization. Income & Growth Fund is a series of Pilgrim
Mayflower Trust, which is a Massachusetts business trust. Balance Sheet
Opportunities Fund is also a Massachusetts business trust. Pilgrim Mutual Funds,
Pilgrim Mayflower Trust and Balance Sheet Opportunities Fund are each governed
by a Board of Trustees. Pilgrim Mayflower Trust has nine Trustees, Balance Sheet
Opportunities Fund has twelve Trustees, and Pilgrim Mutual Funds has thirteen
Trustees. The nine trustees of the Pilgrim Mayflower Trust also serve on the
Boards of Pilgrim Mutual Funds and Balance Sheet Opportunities Fund. The twelve
trustees of the Balance Sheet Opportunities Fund also serve on the Board of
Pilgrim Mutual Funds.
DISTRIBUTOR
Pilgrim Securities, Inc. (the "Distributor"), whose address is 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004, is the principal distributor
for Balanced Fund and the Target Funds. Formerly, Northstar Distributors, Inc.
served as distributor for the Target Funds. However, on November 16, 1999,
Northstar Distributors, Inc. merged with the Distributor.
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<PAGE>
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund pays dividends from net investment income and net capital gains,
if any, on a quarterly basis. For each Fund, dividends and distributions are
determined on a class basis. Dividends and distributions of the Balanced Fund
are automatically reinvested in additional shares of the respective class of
that Fund, unless the shareholder elects to receive distributions in cash.
If the Reorganization Agreements are approved by the Target Funds'
shareholders, then as soon as practicable before the Closing, the Target Funds
will pay their 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 each
of the Target Funds and Balanced Fund 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
---------- --------- -----------
BALANCED FUND
Class A $ 9,618,676 $19.23 500,291
Class B $ 7,157,205 $20.59 347,552
Class C $21,330,586 $18.53 1,150,957
Class T N/A N/A N/A
INCOME & GROWTH FUND
Class A $44,185,207 $12.00 3,683,044
Class B $47,972,153 $11.98 4,004,074
Class C $23,118,836 $11.96 1,933,312
Class T N/A N/A N/A
BALANCE SHEET OPPORTUNITIES FUND
Class A $17,685,927 $13.34 1,325,589
Class B $ 5,178,874 $13.28 389,829
Class C $ 653,349 $13.32 49,068
Class T $20,116,115 $13.40 1,501,011
PRO FORMA - BALANCED FUND
INCLUDING TARGET FUNDS
Class A $71,489,810 $19.23 3,717,619
Class B $60,308,232 $20.59 2,929,006
Class C $45,102,771 $18.53 2,434,041
Class T $20,116,115 $18.64 1,079,191
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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 the Target Funds 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
and its affiliates, without additional compensation, may solicit proxies in
person or by telephone, telegraph, facsimile, or oral communication. The Target
Funds have retained Shareholder Communications Corporation, a professional proxy
solicitation firm, to assist with any necessary solicitation of proxies.
Shareholders of the Target Funds 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 Income & Growth Fund or Balance Sheet Opportunities Fund, as
applicable, a written revocation or duly executed proxy bearing a later date. In
addition, any shareholder who attends the Meeting in person may vote by ballot
at the Meeting, thereby canceling any proxy previously given. The persons named
in the accompanying proxy will vote as directed by the proxy, but in the absence
of voting directions in any proxy that is signed and returned, they intend to
vote "FOR" the Reorganization proposal and may vote in their discretion with
respect to other matters not now known to each Board of Trustees of the Target
Funds that may be presented at the Meeting.
VOTING RIGHTS
Shareholders of Income & Growth Fund and Balance Sheet Opportunities Fund
are entitled to one vote for each share held as to any matter on which they are
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 the Income & Growth Fund and the Balance Sheet
Opportunities Fund at the close of business on January 24, 2000 (the "Record
Date") will be entitled to be present and give voting instructions for the
Target Funds at the Meeting with respect to their shares owned as of that Record
Date. As of the Record Date, _______ shares of the Balance Sheet Opportunities
Fund were outstanding and entitled to vote and ______ shares of the Income &
Growth Fund were outstanding and entitled to vote.
Approval of the Reorganization requires the affirmative vote of a majority
of the outstanding shares of both the Income & Growth Fund and the Balance Sheet
Opportunities Fund. In the event that the shareholders of only one of these
Funds approve the Reorganization, that particular Fund whose shareholders
approved the Reorganization would be reorganized into Balanced Fund. The Fund
not approving the Reorganization may continue to operate as a separate entity.
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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 entitled to vote present in person or by proxy may adjourn
the meeting from time to time until a quorum is present.
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 Income & Growth Fund, as of December 1, 1999, no
current Trustee of Income & Growth Fund owns 1% or more of the outstanding
shares of the Fund and the officers and Trustees of Income & Growth Fund own, as
a group, less than 1% of the shares of the Fund.
To the knowledge of Balance Sheet Opportunities Fund, as of December 1,
1999, no current Trustee of Balance Sheet Opportunities Fund owns 1% or more of
the outstanding shares of the Fund and the officers and Trustees of Balance
Sheet Opportunities Fund own, as a group, less than 1% of the shares of the
Fund.
Appendix E 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
the Target Funds or Balanced Fund.
OTHER MATTERS TO COME BEFORE THE MEETING
The Target Funds do not know of any matters to be presented at the Meeting
other than those described in this Proxy Statement/Prospectus. If other business
should properly come before the Meeting , the proxyholders will vote thereon in
accordance with their best judgment.
SHAREHOLDER PROPOSALS
The Target 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 Target 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.
REPORTS TO SHAREHOLDERS
Pilgrim Advisors will furnish, without charge, a copy of the most recent
Annual Report regarding each of the Target Funds 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 MEETING MAY BE ASSURED,
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
James M. Hennessy, Secretary
February 8, 2000
40 North Central Avenue
Phoenix, AZ 85004
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APPENDIX A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____ day of _____________, 1999, by and between Pilgrim Mutual Funds (the
"Acquiring Company"), a Delaware business trust with its principal place of
business at 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004, on
behalf of Pilgrim Balanced Fund (the "Acquiring Fund"), a separate series of the
Acquiring Company, and Pilgrim Mayflower Trust (the "Acquired Company"), a
Massachusetts business trust with its principal place of business at 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004, on behalf of Pilgrim Income
& Growth Fund (the "Acquired Fund"), a separate series of the Acquired Company.
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 and
Class C voting shares of beneficial interest (no par value per share) of the
Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the Acquiring
Fund of all liabilities of the Acquired Fund, and the distribution of the
Acquiring Fund Shares to the shareholders of the Acquired Fund in complete
liquidation of the Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
WHEREAS, the Acquired Company and the Acquiring Company 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 Trustees of the Acquiring Company have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the 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;
WHEREAS, the Trustees of the Acquired Company, have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the Acquired Fund and its shareholders and that the
interests of the existing shareholders of the Acquired Fund would not be diluted
as a result of this transaction; and
WHEREAS, the Acquiring Company, on behalf of the Acquiring Fund, presently
intends to acquire all of the assets and assume all of the liabilities of
Pilgrim Balance Sheet Opportunities Fund in a transaction substantially similar
to the one set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
A-1
<PAGE>
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1 Subject to the requisite approval of the Acquired Fund shareholders and
the other terms and conditions herein set forth and on the basis of the
representations and warranties contained herein, the Acquired Company 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
and Class C 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").
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 and Class C Acquiring Fund Shares to be so credited to Class A,
Class B and Class C 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 and Class C shares of the Acquired Fund will represent a
A-2
<PAGE>
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 and Class C 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 Company's Declaration of Trust and then-current
prospectus or statement of additional information with respect to the Acquiring
Fund, and valuation procedures established by the Acquiring Company's Board of
Trustees.
2.2 The net asset value of a Class A, Class B and Class C 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 York Stock Exchange and
after the declaration of any dividends on the Valuation Date, using the
valuation procedures set forth in the Acquiring Company's Declaration of Trust
and then-current prospectus or statement of additional information with respect
to the Acquiring Fund, and valuation procedures established by the Acquiring
Company's Board of Trustees.
2.3 The number of the Class A, Class B and Class C 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 March ___, 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
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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 Company 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 and Class C 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 Trustees
of the Acquiring Company and Board of Trustees of the Acquired Company, accurate
appraisal of the value of the net assets of the Acquiring Fund or the Acquired
Fund is impracticable, the Closing Date shall be postponed until the first
business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
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4. REPRESENTATIONS AND WARRANTIES
4.1 The Acquired Company, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) The Acquired Fund is duly organized as a series of the Acquired
Company, which is a business trust duly organized and validly existing under the
laws of the Commonwealth of Massachusetts with power under the Trust's
Declaration of Trust to own all of its properties and assets and to carry on its
business as it is now being conducted;
(b) The Acquired Company 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 the Acquired Company's 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;
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(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
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
October 31, 1999 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 October 31, 1999, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund. For the purposes of this subparagraph (j), a
decline in net asset value per share of the Acquired Fund due to declines in
market values of securities in the Acquired Fund's portfolio, the discharge of
Acquired Fund liabilities, or the redemption of Acquired Fund Shares by
shareholders of the Acquired Fund shall not constitute a material adverse
change;
(k) On the Closing Date, all Federal and other tax returns 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
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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 Company (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 Company, and, subject to the
approval of the shareholders of the Acquired Fund, this Agreement will
constitute a valid and binding obligation of the Acquired Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(o) The information to be furnished by the Acquired Fund for use in
registration statements, proxy materials and other documents filed or to be
filed with any federal, state or local regulatory authority (including the
National Association of Securities Dealers, Inc.), which may be necessary in
connection with the transactions contemplated hereby, shall be accurate and
complete in all material respects and shall comply in all material respects with
Federal securities and other laws and regulations thereunder applicable thereto;
and
(p) The proxy statement of the Acquired Fund (the "Proxy Statement") to be
included in the Registration Statement referred to in paragraph 5.6, insofar as
it relates to the Acquired Fund, will, on the effective date of the Registration
Statement and on the Closing Date (i) not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not materially misleading provided, however,
that the representations and warranties in this subparagraph (p) shall not apply
to statements in or omissions from the Proxy Statement and the Registration
Statement made in reliance upon and in conformity with information that was
furnished by the Acquiring Fund for use therein, and (ii) comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and
the rules and regulations thereunder.
4.2 The Acquiring Company, on behalf of the Acquiring Fund, represents and
warrants to the Acquired Fund as follows:
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(a) The Acquiring Fund is duly organized as a series of the Acquiring
Company, which is a business trust duly organized and validly existing under the
laws of the State of Delaware with power under the Acquiring Company'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 Acquiring Company 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, including the shares of the Acquiring Fund, 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 Company's Declaration of Trust 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;
(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;
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(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 by the Acquiring Company and have been offered and sold in every
state and the District of Columbia in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities laws.
The Acquiring Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any Acquiring Fund Shares, nor is there
outstanding any security convertible into any Acquiring Fund Shares;
(m) The execution, delivery and performance of this Agreement will have
been fully authorized prior to the Closing Date by all necessary action, if any,
on the part of the Trustees of the Acquiring Company on behalf of the Acquiring
Fund and this Agreement will constitute a valid and binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject, as to
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enforcement, to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights and to general equity
principles;
(n) The Class A, Class B and Class C 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
by the Acquiring Company;
(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 Acquiring Company or the Acquiring Fund,
the Registration Statement relating to the Acquiring Fund Shares issuable
hereunder, and the proxy materials of the Acquired Fund to be included in the
Registration Statement, and any amendment or supplement to the foregoing, will,
from the effective date of the Registration Statement through the date of the
meeting of shareholders of the Acquired Fund contemplated therein (i) not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not 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 made in reliance upon and in conformity with information
that was furnished by the Acquired Fund for use therein, and (ii) comply in all
material respects with the provisions of the 1933 Act, the 1934 Act and the 1940
Act and the rules and regulations thereunder.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 The Acquiring Fund and the Acquired Fund each will operate its business
in the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include the declaration
and payment of customary dividends and distributions, and any other distribution
that may be advisable.
5.2 The Acquired Company will call a meeting of the shareholders of the
Acquired Fund to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Class A, Class B and Class C
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.
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5.4 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
5.6 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement referred to in paragraph 4.1(p), all to
be included in a Registration Statement on Form N-14 of the Acquiring Company
(the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act
and the 1940 Act, in connection with the meeting of the shareholders of the
Acquired Fund to consider approval of this Agreement and the transactions
contemplated herein.
5.7 As soon as is reasonably practicable after the Closing, the Acquired
Fund will make a liquidating distribution to its shareholders consisting of the
Class A, Class B and Class C 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 and the
Acquiring Company 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;
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6.2 The Acquiring Company, on behalf of 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 Company
and 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 Company and 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 Company and the
Acquiring Fund on or before the Closing Date; and
6.4 The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each Class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the 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 Company and 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 Company, on behalf of 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 Company, on behalf of 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 Company and 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 Company or the Acquired Fund on
or before the Closing Date;
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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 the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Acquired Company'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. 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 Company and Acquired Company substantially to the
effect that, based upon certain facts, assumptions, and representations, the
transaction contemplated by this Agreement shall constitute a tax-free
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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 Company and
the Acquired Company. Notwithstanding anything herein to the contrary, neither
the Acquiring Company nor the Acquired Company 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 entitled to vote on the
Reorganization. The costs of the Reorganization shall include, but not be
limited to, costs associated with obtaining any necessary order of exemption
from the 1940 Act, preparation of the Registration Statement, printing and
distributing the Acquiring Fund's prospectus and the Acquired Fund's proxy
materials, legal fees, accounting fees, securities registration fees, and
expenses of holding shareholders' meetings. Notwithstanding any of the
foregoing, expenses will in any event be paid by the party directly incurring
such expenses if and to the extent that the payment by 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.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Company and the Acquired Company agree that neither
party has made any representation, warranty or covenant not set forth herein and
that this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing shall survive the Closing.
11. TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
and abandoned by mutual agreement of the parties hereto or by either party by
resolution of the party's Board of Trustees, 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.
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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 Company and the Acquiring Company; provided, however, that following
the meeting of the shareholders of the Acquired Fund called by the Acquired Fund
pursuant to paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Class A,
Class B and Class C 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 Company or to
the Acquired Company, 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.
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 either party hereto personally, but shall bind only the
trust property of such party, as provided in the Declaration of Trust of each
party. 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 each party as provided in
the Declaration of Trust of each party.
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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 MUTUAL FUNDS on behalf of its
BALANCED FUND series
By:
--------------------------------- ---------------------------------
SECRETARY
Its:
--------------------------------- ---------------------------------
Attest: PILGRIM MAYFLOWER TRUST on behalf of
THE PILGRIM INCOME & GROWTH FUND
By:
--------------------------------- ---------------------------------
SECRETARY
Its:
---------------------------------
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FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____ day of _____________, 1999, by and between Pilgrim Mutual Funds (the
"Acquiring Company"), a Delaware business trust with its principal place of
business at 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004, on
behalf of Pilgrim Balanced Fund (the "Acquiring Fund"), a separate series of the
Acquiring Company, and Pilgrim Balance Sheet Opportunities 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 beneficial interest (no par value per
share) of the Acquiring Fund (the "Acquiring Fund Shares"), the assumption by
the Acquiring Fund of all liabilities of the Acquired Fund, and the distribution
of the Acquiring Fund Shares to the shareholders of the Acquired Fund in
complete liquidation of the Acquired Fund as provided herein, all upon the terms
and conditions hereinafter set forth in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Company 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 Trustees of the Acquiring Company have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the 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;
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;
WHEREAS, the Acquiring Company, on behalf of the Acquiring Fund, presently
intends to acquire all of the assets and assume all of the liabilities of
Pilgrim Income & Growth Fund, a separate series of Pilgrim Mayflower Trust, in a
transaction substantially similar to the one set forth in this Agreement; and
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
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1.1 Subject to the requisite approval of the Acquired Fund shareholders and
the other terms and conditions herein set forth and on the basis of the
representations and warranties contained herein, the Acquired Fund agrees to
transfer all of the Acquired Fund's assets, as set forth in paragraph 1.2, to
the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor: (i) to
deliver to the Acquired Fund the number of full and fractional Class A, 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").
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.
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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 Company's Declaration of Trust and then-current
prospectus or statement of additional information with respect to the Acquiring
Fund, and valuation procedures established by the Acquiring Company's Board of
Trustees.
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
York Stock Exchange and after the declaration of any dividends on the Valuation
Date, using the valuation procedures set forth in the Acquiring Company's
Declaration of Trust and then-current prospectus or statement of additional
information with respect to the Acquiring Fund, and valuation procedures
established by the Acquiring Company's Board of Trustees.
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 March ___, 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 Company or at such
other time and/or place as the parties may agree.
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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 Trustees
of the Acquiring Company 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
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;
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(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
no facts which might form the basis for the institution of such proceedings and
is not a party to or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein contemplated;
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(i) The Statement of Assets and Liabilities, Statements of Operations and
Changes in Net Assets, and Schedule of Investments of the Acquired Fund at
December 31, 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
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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;
(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 "Proxy Statement") to be
included in the Registration Statement referred to in paragraph 5.6, insofar as
it relates to the Acquired Fund, will, on the effective date of the Registration
Statement and on the Closing Date (i) not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not materially misleading provided, however,
that the representations and warranties in this subparagraph (p) shall not apply
to statements in or omissions from the Proxy Statement and the Registration
Statement made in reliance upon and in conformity with information that was
furnished by the Acquiring Fund for use therein, and (ii) comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and
the rules and regulations thereunder.
4.2 The Acquiring Company, on behalf of the Acquiring Fund, represents and
warrants to the Acquired Fund as follows:
(a) The Acquiring Fund is duly organized as a series of the Acquiring
Company, which is a business trust duly organized and validly existing under the
laws of the State of Delaware with power under the Acquiring Company'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 Acquiring Company 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, including the shares of the Acquiring Fund, are
in full force and effect;
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(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the 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 Company's Declaration of Trust 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;
(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;
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(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 by the Acquiring Company and have been offered and sold in every
state and the District of Columbia in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities laws.
The Acquiring Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any Acquiring Fund Shares, nor is there
outstanding any security convertible into any Acquiring Fund Shares;
(m) The execution, delivery and performance of this Agreement will have
been fully authorized prior to the Closing Date by all necessary action, if any,
on the part of the Trustees of the Acquiring Company on behalf of the Acquiring
Fund and this Agreement will constitute a valid and binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights and to general equity
principles;
(n) The Class A, 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
by the Acquiring Company;
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<PAGE>
(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 Company or the Acquiring
Fund, the Registration Statement relating to the Acquiring Fund Shares issuable
hereunder, and the proxy materials of the Acquired Fund to be included in the
Registration Statement, and any amendment or supplement to the foregoing, will,
from the effective date of the Registration Statement through the date of the
meeting of shareholders of the Acquired Fund contemplated therein (i) not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not 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 made in reliance upon and in conformity with information
that was furnished by the Acquired Fund for use therein, and (ii) comply in all
material respects with the provisions of the 1933 Act, the 1934 Act and the 1940
Act and the rules and regulations thereunder.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 The Acquiring Fund and the Acquired Fund each will operate its business
in the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include the declaration
and payment of customary dividends and distributions, and any other distribution
that may be advisable.
5.2 The Acquired Fund will call a meeting of the shareholders of the
Acquired Fund to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Class A, 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.
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<PAGE>
5.6 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement referred to in paragraph 4.1(p), all to
be included in a Registration Statement on Form N-14 of the Acquiring Company
(the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act
and the 1940 Act, in connection with the meeting of the shareholders of the
Acquired Fund to consider approval of this Agreement and the transactions
contemplated herein.
5.7 As soon as is reasonably practicable after the Closing, the Acquired
Fund will make a liquidating distribution to its shareholders consisting of the
Class A, 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 Company and 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 Company, on behalf of 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 Company
and 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;
A-27
<PAGE>
6.3 The Acquiring Company and 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 Company and the
Acquiring Fund on or before the Closing Date; and
6.4 The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each Class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the 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
A-28
<PAGE>
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 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. 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 Company 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 Company nor the Acquired Fund may waive the condition set forth in
this paragraph 8.5.
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<PAGE>
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 entitled to vote on the
Reorganization. The costs of the Reorganization shall include, but not be
limited to, costs associated with obtaining any necessary order of exemption
from the 1940 Act, preparation of the Registration Statement, printing and
distributing the Acquiring Fund's prospectus and the Acquired Fund's proxy
materials, legal fees, accounting fees, securities registration fees, and
expenses of holding shareholders' meetings. Notwithstanding any of the
foregoing, expenses will in any event be paid by the party directly incurring
such expenses if and to the extent that the payment by 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.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Company 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, 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 Company; provided, however, that following the
meeting of the shareholders of the Acquired Fund called by the Acquired Fund
pursuant to paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Class A,
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<PAGE>
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 Company 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.
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 either party hereto personally, but shall bind only the
trust property of such party, as provided in the Declaration of Trust of each
party. 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 each party as provided in
the Declaration of Trust of each party.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
Attest: PILGRIM MUTUAL FUNDS on behalf of its
BALANCED FUND series
By:
--------------------------------- ---------------------------------
SECRETARY
Its:
--------------------------------- ---------------------------------
Attest: PILGRIM BALANCE SHEET OPPORTUNITIES FUND
By:
--------------------------------- ---------------------------------
SECRETARY
Its:
---------------------------------
A-32
<PAGE>
APPENDIX B
ADDITIONAL INFORMATION REGARDING PILGRIM BALANCED FUND
(THE "FUND")
SHAREHOLDER GUIDE
PILGRIM PURCHASE OPTIONS(TM)
This Proxy Statement/Prospectus relates to four separate classes of the
Pilgrim Balanced 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 shares of either
the Income & Growth Fund or the Balance Sheet Opportunities Fund held by you
immediately prior to the Reorganization, and the period that you held the shares
of either the Income & Growth Fund or the Balance Sheet Opportunities Fund will
be included in the holding period of the Balanced Fund shares for purposes of
calculating contingent deferred sales charges and determining conversion rights.
Purchases of the shares of the Balanced Fund after the Reorganization will be
subject to the sales load structure and conversion rights discussed below.
The Balanced Fund also offers Class Q shares, which have different
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
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Initial Sales Charge on Purchases 5.75% (1) None None N/A
CDSC None(2) 5.00%(3) 1.00%(4) N/A
Annual Distribution (12b-1) Fee and Service(5) 0.35% 1.00% 1.00% 0.65%
Maximum Purchase Unlimited $250,000 Unlimited Unlimited
Automatic Conversion to Class A N/A 8 Years(6) N/A 8 Years(6)
</TABLE>
- ----------
(1) Imposed upon purchase. Reduced for purchases of $50,000 and over.
(2) 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."
(3) Imposed upon redemption within 6 years from purchase. Shares exchanged from
the Target Funds 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."
(4) Imposed upon redemption within 1 year from purchase.
(5) Annual asset-based distribution charge.
(6) Class B and Class T shares of the Balanced Fund issued to shareholders of
the Target Funds 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 the Target Funds, as applicable.
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 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."
As a % of the As a % of Net Dealers' Reallowance as
Your Investment Offering Price Asset Value a % of Offering Price
--------------- -------------- ----------- ---------------------
Less than $50,000 5.75% 6.10% 5.00%
$50,000 - $99,999 4.50% 4.71% 3.75%
$100,000 - $249,999 3.50% 3.63% 2.75%
$250,000 - $499,999 2.50% 2.56% 2.00%
$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, 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
Your Investment CDSC Which CDSC Applies
--------------- ---- ------------------
$1,000,000 to $2,499,999 1.00% 2 years
$2,500,000 to $4,999,999 0.50% 1 year
$5,000,000 and over 0.25% 1 year
However, Class A shares of the Balanced Fund issued in connection with the
Reorganization with respect to Class A shares of either of the Target Funds that
were purchased prior to November 1, 1999 and 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 either of the Target Funds.
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
group of funds which offer Class A shares, or shares with front-end sales
charges (`Participating Funds') by completing the Letter of Intent section of an
Application to purchase Fund shares. Executing the Letter of Intent expresses an
intention to invest during the next 13 months a specified amount, which, if made
at one time, would qualify for a reduced sales charge. An amount equal to the
Letter amount multiplied by the maximum sales charge imposed on purchases of the
applicable Fund and class will be restricted within your account to cover
additional sales charges that may be due if your actual total investment fails
to qualify for the reduced sales charges. See the Statement of Additional
Information for the Fund for details on the Letter of Intent option or contact
the Shareholder Servicing Agent at (800) 992-0180 for more information.
B-2
<PAGE>
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
group of 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 the Pilgrim group of funds which impose a
CDSC may be combined with Class A shares for a reduced sales charge but will not
affect any CDSC which may be imposed upon the redemption of shares of the
Balanced Fund which imposes a CDSC.
SPECIAL PURCHASES WITHOUT A SALES CHARGE
Class A shares may be purchased without a sales charge by certain
individuals and institutions. For additional information, contact the
Shareholder Servicing Agent at (800) 992-0180, or see the Statement of
Additional Information for the Fund.
CLASS B SHARES
DEFERRED SALES CHARGE ALTERNATIVE
Class B shares may be purchased at their NAV per share without a sales
charge at the time of purchase. Class B shares that are redeemed within six
years of purchase, however, will be subject to a CDSC as described in the table
that follows. Class B shares of the Fund are subject to a distribution fee at an
annual rate of 1.00% of the average daily net assets of the Class, which is
higher than the distribution fees of Class A shares. The higher distribution
fees mean a higher expense ratio, so Class B shares pay correspondingly lower
dividends and may have a lower NAV than Class A shares. In connection with sales
of Class B shares, the Distributor compensates Authorized Dealers at a rate of
4% of purchase payments subject to a CDSC. Orders for Class B shares in excess
of $250,000 will be accepted as orders for Class A shares or declined. The
amount of the CDSC is determined as a percentage of the lesser of the NAV of the
Class B shares at the time of purchase or redemption. No charge will be imposed
for any net increase in the value of shares purchased during the preceding six
years in excess of the purchase price of such shares or for shares acquired
either by reinvestment of net investment income dividends or capital gain
distributions. The percentage used to calculate the CDSC will depend on the
number of years since you invested the dollar amount being redeemed according to
the following table:
B-3
<PAGE>
Year of Redemption After Purchase CDSC
--------------------------------- ----
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
After Sixth Year 0%
However, Class B shares of the Balanced Fund issued in connection with the
Reorganization with respect to Class B shares of the Target Funds 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 approximately
eight years after purchase. Class B shares of the Balanced Fund issued in
connection with the Reorganization with respect to Class B shares of the Target
Funds that were held prior to November 1, 1999 will convert to Class A shares
eight years after the purchase of the original shares of the Target Funds. 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 are offered at their net asset value per share without an
initial sales charge. Class C shares may be subject to a CDSC of 1% if redeemed
within one year of purchase. 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 Balance Sheet Opportunities 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 group of 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.
Class T shares will automatically convert into Class A shares approximately
eight years after purchase, except that Class T shares of the Balanced Fund
issued in connection with the Reorganization will convert to Class A shares
eight years after the purchase of the original shares of the Target Funds. For
additional information about Class T shares, see the Pilgrim Prospectus and the
Statement of Additional Information for the Pilgrim group of funds.
B-4
<PAGE>
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 for more information.
RULE 12b-1 PLAN
The Fund has a distribution plan pursuant to Rule 12b-1 under the 1940 Act
applicable to each class of shares of the Fund ("Rule 12b-1 Plan"). Under the
Rule 12b-1 Plan, the Distributor may receive from the Fund an annual fee in
connection with the offering, sale and shareholder servicing of the Fund's Class
A, Class B, Class C and Class T shares.
B-5
<PAGE>
DISTRIBUTION AND SERVICING FEES
As compensation for services rendered and expenses borne by the Distributor
in connection with the distribution of shares of the Fund and in connection with
services rendered to shareholders of the Fund, the Fund pays the Distributor
servicing fees and distribution fees up to the annual rates set forth below
(calculated as a percentage of the Fund's average daily net assets attributable
to that class):
Servicing Fee Distribution Fee
------------- ----------------
Class A 0.25% none
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class T 0.25% 0.50%
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% 0.00%
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 Fund expenses are allocated
proportionately among all of the outstanding shares of that Fund. However, the
Rule 12b-1 Plan fees for each class of shares are charged proportionately only
to the outstanding shares of that class.
PURCHASING SHARES
The Fund reserves the right to liquidate sufficient shares to recover
annual Transfer Agent fees should the investor fail to maintain his/her account
value at a minimum of $1,000.00 ($250.00 for IRA's). The minimum initial
investment in the Fund is $1,000 ($250 for IRAs), and the minimum for additional
investment in the Fund is $100.
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-U.S. banks (even if payment may be effected through a U.S.
bank) will not be accepted. Pilgrim Investments reserves the right to waive
minimum investment amounts.
B-6
<PAGE>
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.
DETERMINATION OF NET ASSET VALUE
The NAV of each class of the Fund's shares is determined daily as of the
close of regular trading on the New York Stock Exchange (usually at 4:00 p.m.
New York City time) on each day that it is opened for business. Each class' NAV
represents that class' pro rata share of that Fund's net assets as adjusted for
any class specific expenses (such as fees under a Rule 12b-1 plan), and divided
by that class' outstanding shares. In general, the value of the Fund's assets is
based on actual or estimated market value, with special provisions for assets
not having readily available market quotations, and short-term debt securities.
The NAV per share of each class of the Fund will fluctuate in response to
changes in market conditions and other factors. Portfolio securities for which
market quotations are readily available are stated at market value. Short-term
debt securities having a maturity of 60 days or less are valued at amortized
cost, unless the amortized cost does not approximate market value. Securities
prices may be obtained from automated pricing services. In other cases,
securities are valued at their fair value as determined in good faith by the
Board of Directors, although the actual calculations will be made by persons
acting under the supervision of the Board. For information on valuing foreign
securities, see the Fund's Statement of Additional Information.
PRE-AUTHORIZED INVESTMENT PLAN
You may establish a pre-authorized investment plan to purchase shares with
automatic bank account debiting. For further information on pre-authorized
investment plans, contact the Shareholder Servicing Agent at (800) 992-0181.
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.
B-7
<PAGE>
EXECUTION OF REQUESTS
Purchase and sale requests are executed at the next NAV determined after
the order is received in proper form by the Transfer Agent or Distributor. A
purchase order will be deemed to be in proper form when all of the required
steps set forth above under "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 redemptions may be executed on all accounts other than retirement
accounts.
EXCHANGE PRIVILEGES AND RESTRICTIONS
An exchange privilege is available. Exchange requests may be made in
writing to the Transfer Agent or by calling the Shareholder Servicing Agent at
(800) 992-0180. There is no specific limit on exchange frequency; however, the
Fund is intended for long term investment and not as a trading vehicle. Pilgrim
Investments reserves the right to prohibit excessive exchanges (more than four
per year). Pilgrim Investments reserves the right, upon 60 days' prior notice,
to restrict the frequency of, otherwise modify, or impose charges of up to $5.00
upon exchanges. The total value of shares being exchanged must at least equal
the minimum investment requirement of the fund into which they are being
exchanged.
Shares of one class of the Fund may be exchanged for shares of 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
B-8
<PAGE>
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, monthly, quarterly,
semi-annually or annually (on or about the 10th of the applicable month), from
your account to an identically registered account in the same class of any other
open-end Pilgrim Fund. This exchange privilege may be modified at any time or
terminated upon 60 days written notice to shareholders.
SMALL ACCOUNTS
Due to the relatively high cost of handling small investments, the 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 the 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
B-9
<PAGE>
small investments, the Fund reserves the right upon 30 days written notice to
redeem, at NAV, the shares of any shareholder whose account (except for IRAs)
has a value of less than $1,000, other than as a result of a decline in the NAV
per share. The Fund intends to pay in cash for all shares redeemed, but under
abnormal conditions that make payment in cash 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.
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, the Fund's principal underwriter,
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
B-10
<PAGE>
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 Balanced Fund's investment objectives and
policies. Pilgrim Investments will use its reasonable efforts to place all
purchase and sale transactions with brokers, dealers and banks ("brokers") that
provide "best execution" of these orders. In placing purchase and sale
transactions, Pilgrim Investments may consider brokerage and research services
provided by a broker to Pilgrim Investments or its affiliates, and the Fund may
pay a commission for effecting a securities transaction that is in excess of the
amount another broker would have charged if Pilgrim Investments determines in
good faith that the amount of commission is reasonable in relation to the value
of the brokerage and research services provided by the broker. In addition,
Pilgrim Investments may place securities transactions with brokers that provide
certain services to the Fund. Pilgrim Investments also may consider a broker's
sale of Fund shares if Pilgrim Investments is satisfied that the Fund would
receive best execution of the transaction from that broker.
DIVIDENDS, DISTRIBUTIONS & TAXES
DIVIDENDS AND DISTRIBUTIONS
The Balanced Fund has a policy of paying quarterly 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
B-11
<PAGE>
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.
YEAR 2000 COMPLIANCE
[Like other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Year 2000 Problem could have a
negative impact on handling securities trades, payment of interest and
dividends, pricing, and account services. Pilgrim Investments has taken steps
that it believes are reasonably designed to address the Year 2000 Problem with
respect to computer systems that it uses and to obtain reasonable assurances
that comparable steps have been taken by the Fund's other major service
providers. It is not anticipated that the Fund will directly bear any material
costs associated with Pilgrim Investments and the Fund's other service providers
efforts to become Year 2000 compliant. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact to the
Fund nor can there be any assurance that the Year 2000 Problem will not have an
adverse effect on the companies whose securities are held by the Fund or on
global markets or economies, generally.]
B-12
<PAGE>
FINANCIAL HIGHLIGHTS
PILGRIM
BALANCED
FUND
- --------------------------------------------------------------------------------
For the three months ended June 30, 1999, the information in the table below has
been audited by KPMG LLP, independent auditors. For all periods ending prior to
June 30, 1999, the financial information was audited by other independent
auditors.
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------
Three Months
Ended Year Ended March 31,
June 30, ---------------------------------------------------
1999(b) 1999 1998 1997 1996 1995
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 19.03 $ 19.53 $ 15.54 $ 16.16 $ 13.74 $ 13.52
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10 0.36 0.26 0.32 0.34 0.21
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains
on investments 0.17 2.58 5.70 0.84 2.42 0.22
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 0.27 2.94 5.96 1.16 2.76 0.43
- -------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income 0.07 0.43 0.27 0.32 0.34 0.21
- -------------------------------------------------------------------------------------------------------------
Net realized gains on investments -- 3.01 1.70 1.46 -- --
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 19.23 $ 19.03 $ 19.53 $ 15.54 $ 16.16 $ 13.74
=============================================================================================================
TOTAL RETURN(c): 1.42% 17.10% 39.34% 6.74% 20.16% 3.22%
- -------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 9,619 $ 9,519 $ 6,675 $ 4,898 $ 5,902 $ 4,980
- -------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses after expense
reimbursement(d) 1.49% 1.59% 1.61% 1.60% 1.60% 1.60%
- -------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
reimbursement(d) 1.75% 1.97% 2.56% 3.00% 3.30% 2.78%
- -------------------------------------------------------------------------------------------------------------
Net investment income (loss) after
expense reimbursement(d) 2.06% 2.08% 3.58% 1.87% 2.16% 1.44%
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover 63% 165% 260% 213% 197% 110%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of offering of shares.
(b) Effective May 24, 1999, Pilgrim Investments, Inc., became the Investment
Manager of the Fund.
(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 for less than one year is not annualized.
(d) Annualized
B-13
<PAGE>
<TABLE>
<CAPTION>
Class B Class C
- --------------------------------------------------- ----------------------------------------------------------------
Three Months May 31, Three Months
Ended Year Ended March 31, 1995(a) to Ended Year Ended March 31,
June 30, -------------------------- March 31, June 30, ---------------------------------------------------
1999(b) 1999 1998 1997 1996 1999(b) 1999 1998 1997 1996 1995
------- ---- ---- ---- ---- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$20.38 $ 20.07 $ 14.88 $14.18 $ 12.50 $ 18.35 $ 19.90 $ 15.59 $ 16.20 $ 13.76 $ 13.54
- ---------------------------------------------------- ----------------------------------------------------------------
0.07 0.28 0.15 0.17 0.12 0.06 0.26 0.15 0.21 0.24 0.11
- ---------------------------------------------------- ----------------------------------------------------------------
0.18 2.74 5.58 0.70 1.68 0.16 2.52 5.71 0.85 2.44 0.22
- ---------------------------------------------------- ----------------------------------------------------------------
0.25 3.02 5.73 0.87 1.80 0.22 2.78 5.86 1.06 2.68 0.33
- ---------------------------------------------------- ----------------------------------------------------------------
0.04 0.31 0.15 0.17 0.12 0.04 0.28 0.15 0.21 0.24 0.11
- ---------------------------------------------------- ----------------------------------------------------------------
-- 2.40 0.39 -- -- -- 4.05 1.40 1.46 -- --
- ---------------------------------------------------- ----------------------------------------------------------------
$20.59 $ 20.38 $ 20.07 $14.88 $ 14.18 $ l8.53 $ 18.35 $ 19.90 $ 15.59 $ 16.20 $ 13.76
==================================================== ================================================================
1.24% 16.49% 38.79% 6.10% 14.45% 1.21% 16.34% 38.35% 6.05% 19.58% 2.47%
- ---------------------------------------------------- ----------------------------------------------------------------
$7,157 $ 6,048 $ 4,254 $2,133 $ 673 $21,331 $21,655 $20,784 $16,990 $16,586 $16,470
- ---------------------------------------------------- ----------------------------------------------------------------
2.14% 2.24% 2.26% 2.25% 2.25% 2.14% 2.23% 2.26% 2.25% 2.25% 2.25%
- ---------------------------------------------------- ----------------------------------------------------------------
2.40% 2.62% 2.71% 6.44% 13.05% 2.40% 2.61% 2.68% 2.83% 3.01% 2.60%
- ---------------------------------------------------- ----------------------------------------------------------------
1.41% 1.43% 2.99% 1.25% 1.38% 1.41% 1.43% 2.93% 1.23% 1.53% 0.83%
- ---------------------------------------------------- ----------------------------------------------------------------
63% 165% 260% 213% 197% 63% 165% 260% 213% 197% 110%
- ---------------------------------------------------- ----------------------------------------------------------------
</TABLE>
B-14
<PAGE>
APPENDIX C
SUMMARY DESCRIPTION OF BOND RATINGS
The following are excerpts from S&P's description of its bond ratings: BB,
B, CCC, CC, C -- predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with terms of the obligation; BB
indicates the lowest degree of speculation and C the highest. D -- in payment
default. S&P applies indicators "+," no character, and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
The following are excerpts from Moody's description of its bond ratings: Ba
- -- judged to have speculative elements; their future cannot be considered as
well assured. B -- generally lack characteristics of a desirable investment. Caa
- -- are of poor standing; such issues may be in default or there may be present
elements of danger with respect to principal or interest. Ca --speculative in a
high degree; often in default. C -- lowest rate class of bonds; regarded as
having extremely poor prospects. Moody's also applies numerical indicators 1, 2
and 3 to rating categories. The modifier 1 indicates that the security is in the
higher end of its rating category; 2 indicates a mid-range ranking; and 3
indicates a ranking towards the lower end of the category.
<PAGE>
APPENDIX D
The following is a list of the current funds in the Pilgrim group of 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) Subject to shareholder approval, this fund will be reorganized into the
Pilgrim Government Securities Income Fund.
(2) Subject to shareholder approval, this fund will be reorganized into the
Pilgrim High Yield Fund II.
(3) Subject to shareholder approval, these funds will be reorganized into the
Pilgrim Balanced Fund.
<PAGE>
APPENDIX E
As of November 22, 1999, the following persons owned of record 5% or more
of the outstanding shares of the specified class of each of Income & Growth
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 & Smith, B 29.35% 12.60%
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 of record 5% or more
of the outstanding shares of the specified class of Balance Sheet Opportunities
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 & Smith, B 6.84% 0.88%
For the Sole Benefit of Its Customers,
Attn: Fund Admin
4800 Deer Lake Drive E 2nd Floor
Jacksonville, FL 32246-6484
Wexford Clearing Services FBO C 10.67% 0.14%
Nicholas de Morato IRA
527 Hillside St.
Forest City, PA 18421
Wexford Clearing Services FBO C 7.13% 0.09%
Frances A Tartaglione IRA
114 Holden Blvd
Staten Island, NY 10314
Wexford Clearing Services FBO C 15.98% 0.21%
Anthony F Costa IRA
52 Hayrick Ln
Commack, NY 11725
Wexford Clearing Services FBO C 6.31% 0.08%
Teresa R Costa IRA
52 Hayrick Ln
Commack, NY 11725
Wexford Clearing Services FBO C 27.13% 0.36%
Colt Collectors Assn Inc.
c/o Richard Burdick
PO Box 4667
Ventura, CA 93007
</TABLE>
As of November 22, 1999, the following persons owned of record 5% or more
of the outstanding shares of the specified class of Balanced 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 & Smith, A 30.92% 8.06%
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 15.04% 2.84%
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 62.80% 34.25%
For the Sole Benefit of Its Customers,
Attn: Fund Admin
4800 Deer Lake Drive E 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
<PAGE>
PILGRIM INCOME & GROWTH FUND
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS SCHEDULED FOR MARCH 24, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoint(s) Robert W. Stallings and James M. Hennessy or
any one or more of them, proxies, with full power of substitution, to vote all
shares of the Pilgrim Income & Growth Fund (the "Fund") which the undersigned is
entitled to vote at the Special Meeting of Shareholders of the Fund to be held
at the offices of the Fund at 40 North Central Avenue, Suite 1200, Phoenix,
Arizona 85004, and which is scheduled for March 24, 2000 at 9:00 a.m., local
time, and at any adjournment thereof.
This proxy will be voted as instructed. If no specification is made, the proxy
will be voted "FOR" the proposals.
Please vote, date and sign this proxy and return it promptly in the enclosed
envelope.
Please indicate your vote by an "x" in the appropriate box below.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL:
1. To approve an Agreement and Plan of Reorganization providing for the
acquisition of all of the assets of Pilgrim Income & Growth Fund by Pilgrim
Balanced Fund in exchange for shares of common stock of Pilgrim Balanced
Fund and the assumption by Pilgrim Balanced Fund of all of the liabilities
of Pilgrim Income & Growth Fund.
For [ ] Against [ ] Abstain [ ]
This proxy must be signed exactly as your name(s) appears hereon. If as an
attorney, executor, guardian or in some representative capacity or as an officer
of a corporation, please add titles as such. Joint owners must each sign.
- -------------------------------- --------------
Signature Date
- -------------------------------- --------------
Signature (if held jointly) Date
<PAGE>
PILGRIM BALANCE SHEET OPPORTUNITIES FUND
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS SCHEDULED FOR MARCH 24, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoint(s) Robert W. Stallings and James M. Hennessy or
any one or more of them, proxies, with full power of substitution, to vote all
shares of the Pilgrim Balance Sheet Opportunities Fund (the "Fund") which the
undersigned is entitled to vote at the Special Meeting of Shareholders of the
Fund to be held at the offices of the Fund at 40 North Central Avenue, Suite
1200, Phoenix, Arizona 85004, and which is scheduled for March 24, 2000 at 9:00
a.m., local time, and at any adjournment thereof.
This proxy will be voted as instructed. If no specification is made, the proxy
will be voted "FOR" the proposals.
Please vote, date and sign this proxy and return it promptly in the enclosed
envelope.
Please indicate your vote by an "x" in the appropriate box below.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL:
1. To approve an Agreement and Plan of Reorganization providing for the
acquisition of all of the assets of Pilgrim Balance Sheet Opportunities
Fund by Pilgrim Balanced Fund in exchange for shares of common stock of
Pilgrim Balanced Fund and the assumption by Pilgrim Balanced Fund of all of
the liabilities of Pilgrim Balance Sheet Opportunities Fund.
For [ ] Against [ ] Abstain [ ]
This proxy must be signed exactly as your name(s) appears hereon. If as an
attorney, executor, guardian or in some representative capacity or as an officer
of a corporation, please add titles as such. Joint owners must each sign.
- -------------------------------- --------------
Signature Date
- -------------------------------- --------------
Signature (if held jointly) Date
<PAGE>
PART B
PILGRIM MUTUAL FUNDS
Statement of Additional Information
January 20, 2000
Acquisition of the Assets By and in Exchange for Shares of
and Liabilities of Pilgrim Balanced Fund
Pilgrim Income & Growth Fund and 40 North Central Avenue, Suite 1200
Pilgrim Balance Sheet Opportunities Fund Phoenix, Arizona 85004
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
This Statement of Additional Information is available to the Shareholders of
Pilgrim Income & Growth Fund (formerly, Northstar Growth & Income Fund) and
Pilgrim Balance Sheet Opportunities Fund (formerly, Northstar Balance Sheet
Opportunities Fund) in connection with a proposed transaction whereby all of the
assets and liabilities of Pilgrim Income & Growth Fund and Pilgrim Balance Sheet
Opportunities Fund will be transferred to Pilgrim Balanced Fund, a series of
Pilgrim Mutual Funds, in exchange for shares of Pilgrim Balanced Fund.
This Statement of Additional Information of the Pilgrim Mutual Funds consists of
this cover page and the following documents, each of which was filed
electronically with the Securities and Exchange Commission and is incorporated
by reference herein:
1. The Statement of Additional Information for Pilgrim Balanced Fund, Pilgrim
Income & Growth Fund and Pilgrim Balance Sheet Opportunities Fund Dated
January 4, 2000, as filed on December __, 1999.
2. The Financial Statements of Pilgrim Balanced Fund included in the Annual
Report of Pilgrim Mutual Funds dated June 30, 1999, as filed on September
9, 1999.
3. The Financial Statements of Pilgrim Income & Growth Fund included in the
Annual Report to Shareholders of the Northstar Funds dated October 31,
1998, as filed on December 31, 1998.
4. The Financial Statements of Pilgrim Income & Growth Fund included in the
Semi-Annual Report to Shareholders of the Northstar Funds dated April 30,
1999, as filed on July 2, 1999.
5. The Financial Statements of Pilgrim Balance Sheet Opportunities Fund
included in the Annual Report to Shareholders of the Northstar Funds dated
December 31, 1998, as filed on March 1, 1999.
6. The Financial Statements of Pilgrim Balance Sheet Opportunities Fund
included in the Semi-Annual Report to Shareholders of the Northstar Funds
dated June 30, 1999, as filed on August 31, 1999.
This Statement of Additional Information is not a prospectus. A Prospectus/Proxy
Statement dated January 20, 2000 relating to the reorganization of the Pilgrim
Income & Growth Fund and the Pilgrim Balance Sheet Opportunities Fund may be
obtained, without charge, by writing to Pilgrim at 40 North Central Avenue,
Suite 1200, Phoenix, Az 85004 or calling (800) 992-0180. This Statement of
Additional Information should be read in conjunction with the Prospectus/Proxy
Statement.
B-1
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES AS OF JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
INCOME & BALANCED SHEET
BALANCED GROWTH OPPORTUNITIES PRO FORMA PRO FORMA
FUND FUND FUND ADJUSTMENTS COMBINED
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities at market value * $35,015,316 $110,738,555 $41,353,006 $187,106,877
Short-term investments at amortized cost 3,938,000 4,356,000 2,122,000 10,416,000
Cash 116,334 848 947 118,129
Receivables:
Fund shares sold 71,661 5,130 2,873 79,664
Dividends and interest 220,872 664,287 302,857 1,188,016
Due from affiliate 76,465 14,094 0 90,559
Investment securities sold 2,671,478 0 0 2,671,478
Prepaid expenses 2,238 2,174 19,698 24,110
--------------------------------------------------------------------
Total Assets 42,112,364 115,781,088 43,801,381 201,694,833
--------------------------------------------------------------------
LIABILITIES:
Payable for investment securities purchased 3,695,309 -- -- 3,695,309
Payable for fund shares redeemed 33,771 270,802 75,900 380,473
Payable to affiliate -- 149,038 56,160 205,198
Other accrued expenses and liabilities 30,686 85,053 35,056 150,795
Income distribution payable 56,354 -- -- 56,354
--------------------------------------------------------------------
Total Liabilities 3,816,120 504,892 167,116 4,488,128
--------------------------------------------------------------------
NET ASSETS $38,296,244 $115,276,196 $43,634,265 $197,206,705
====================================================================
NET ASSETS CONSIST OF:
Paid-in capital $29,576,001 $81,832,785 $32,902,246 $144,311,032
Undistributed (overdistributed) net
investment income (16,013) 7,615 15,158 6,760
Accumulated net realized gain (loss) on
investments and foreign currency transactions 2,460,901
Net unrealized appreciation (depreciation) of:
Investments and other assets 6,602,814 18,407,330 2,460,901 25,010,144
liabilities and forward contracts
denominated in foreign currencies 2,133,442 15,028,467 8,255,960 25,417,869
--------------------------------------------------------------------
Net Assets $38,296,244 $115,276,196 $43,634,265 $197,206,705
====================================================================
* Cost of securities 32,880,976 95,710,088 33,097,046 $161,688,110
CLASS A:
Net Assets $9,618,676 $44,185,207 $17,685,927 $71,489,810
Shares authorized unlimited unlimited unlimited unlimited
Shares outstanding 500,291 3,683,044 1,325,589 (1,791,305)(A) 3,717,619
Net asset value and redemption price per share $19.23 $12.00 $13.34 $19.23
Maximum offering price per share $20.40 $12.60 $14.01 $20.40
CLASS B:
Net Assets $7,157,205 $47,972,153 $5,178,874 $60,308,232
Shares authorized unlimited unlimited unlimited unlimited
Shares outstanding 347,552 4,004,074 389,829 (1,812,449)(A) 2,929,006
Net asset value and redemption price per share $20.59 $11.98 $13.28 $20.59
Maximum offering price per share $20.59 $11.98 $13.28 $20.59
CLASS C:
Net Assets $21,330,586 $23,118,836 $653,349 $45,102,771
Shares authorized unlimited unlimited unlimited unlimited
Shares outstanding 1,150,957 1,933,312 49,068 (699,297)(A) 2,434,041
Net asset value and redemption price per share $18.53 $11.96 $13.32 $18.53
Maximum offering price per share $18.53 $11.96 $13.32 $18.53
CLASS Q:
Net Assets $189,777 -- -- $189,777
Shares authorized unlimited -- -- unlimited
Shares outstanding 9,967 -- -- 9,967
Net asset value and redemption price per share $19.04 -- -- $19.04
Maximum offering price per share $19.04 -- -- $19.04
CLASS T:
Net Assets -- -- $20,116,115 $20,116,115
Shares authorized -- -- unlimited unlimited
Shares outstanding -- -- 1,501,011 (421,820)(A) 1,079,191
Net asset value and redemption price per share -- -- $13.40 $18.64
Maximum offering price per share -- -- $13.40 $18.64
</TABLE>
(A) Reflects new share issued of the Balanced Fund, net of retired Shares of
the Balance Sheet Opportunities Fund and Income and Growth Fund.
See Accompanying Notes to Financial Statements
B-2
<PAGE>
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
BALANCE SHEET
OPPORTUNITIES BALANCED INCOME & PRO FORMA
FUND FUND GROWTH FUND COMBINED
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, PROFORMA JUNE 30,
1999 1999 1999 ADJUSTMENTS 1999
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends, net of foreign taxes $ 386,121 $ 372,707 $ 1,503,931 $2,262,759
Interest 2,144,761 931,297 3,094,938 6,170,996
Securities lending -- 16,078 -- 16,078
------------------------------------------------------------------
Total investment income 2,530,882 1,320,082 4,598,869 8,449,833
------------------------------------------------------------------
EXPENSES:
Investment management fees 313,689 272,574 1,052,730 144,644 (A) 1,783,637
Administrative service fees 62,339 -- 140,364 (202,703) (A) --
Distribution expenses 293,293 220,609 1,076,811 79,455 (A) 1,670,169
Transfer agent and registrar fees 57,585 53,559 186,390 297,534
Custodian fees 27,749 24,651 54,649 107,049
Registration and filing fees 36,007 38,834 32,202 (36,007) (B) 71,036
Audit fees 19,397 13,690 28,937 (19,397) (B) 42,627
Trustees' fees and expenses 8,470 838 9,948 (838) (B) 18,418
Other expenses 103,004 199,643 137,921 440,568
------------------------------------------------------------------
Total expenses 921,533 824,398 2,719,952 (34,846) 4,431,038
------------------------------------------------------------------
Less:
Waived and reimbursed fees -- 144,644 -- 201,664 (C) 346,308
Earnings credits -- 327 -- 327
------------------------------------------------------------------
Net expenses 921,533 679,427 2,719,952 (236,510) 4,084,403
------------------------------------------------------------------
Net investment income 1,609,349 640,655 1,878,917 236,510 4,365,430
------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain from:
Investments 3,503,236 7,394,897 8,436,156 19,334,289
Foreign currency transactions -- (54,623) -- (54,623)
Net change in unrealized appreciation
(depreciation) of:
Investments (3,128,042) 1,726,267 (20,526,781) (21,928,556)
Translation of other assets, liabilities
and forward contracts denominated in
foreign currencies -- 66,687 -- 66,687
------------------------------------------------------------------
Net gain (loss) from investments and
foreign currencies 375,194 9,133,228 (12,090,625) (2,582,203)
------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $1,984,543 $9,773,883 ($10,211,708) $236,510 $1,783,228
==================================================================
</TABLE>
(A) Reflects adjustment in expenses due to effects of proposed contract rate.
(B) Reflects adjustment in expenses due to elimination of duplicative services.
(C) Reflects change in the amount to be waived or reimbursed by Pilgrim
Investments, Inc. to keep the Fund at its proposed expense limit.
See Accompanying Notes to Financial Statements
B-3
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF COMBINATION:
On November 16, 1999, the Boards of Pilgrim Balanced Fund ("Balanced
Fund"), Pilgrim Income & Growth Fund (formerly Northstar Income & Growth Fund)
("Income & Growth Fund"), and Pilgrim Balance Sheet Opportunities Fund (formerly
Northstar Balanced Sheet Opportunities Fund) ("Balance Sheet Opportunities
Fund") approved an Agreement and Plan of Reorganization (the "Plan") whereby,
subject to approval by the shareholders of Balance Sheet Opportunities Fund and
Income & Growth Fund, Balanced Fund will acquire all the assets of the Income &
Growth Fund and Balance Sheet Opportunities Fund subject to the liabilities of
such Fund, in exchange for a number of shares equal to the pro rata net assets
of shares of the Balanced Fund (the "Merger").
The Merger will be accounted for as a tax free merger of investment
companies. The pro forma combined financial statements are presented for the
information of the reader and may not necessarily be representative of what the
actual combined financial statements would have been had the reorganization
occurred at June 30, 1999. The unaudited pro forma portfolio of investments, and
statement of assets and liabilities reflect the financial position of Balanced
Fund, Income & Growth Fund and Balance Sheet Opportunities Fund at June 30,
1999. The unaudited pro forma statement of operations reflects the results of
operations of the Balanced Fund, Income & Growth Fund and Balance Sheet
Opportunities Fund for the year ended June 30, 1999. These statements have been
derived from the Funds' respective books and records utilized in calculating
daily net asset value at the dates indicated above for Balanced Fund, Income &
Growth Fund and Balance Sheet Opportunities Fund under generally accepted
accounting principles. The historical cost of investment securities will be
carried forward to the surviving entity and results of operations of Balanced
Fund for pre-combination periods will not be restated.
The pro forma portfolio of investments, and statements of assets and
liabilities and operations should be read in conjunction with the historical
financial statements of the Funds incorporated by reference in the Statements of
Additional Information.
NOTE 2 - SECURITY VALUATION:
Investments in equity securities traded on a national securities exchange
or included on the NASDAQ National Market System are valued at the last reported
sale price. Securities traded on an exchange of NASDAQ for which there has been
no sale and securities traded in the over-the-counter-market are valued at the
mean between the last reported bid and ask prices. All investments quoted in
foreign currencies will be valued daily in U.S. Dollars on the basis of the
foreign currency exchange rates prevailing at the time such valuation is
determined by each Fund's Custodian. Debt securities are valued at bid prices
obtained from independent services or from one or more dealers making markets in
the securities. U.S. Government obligations are valued by using market
quotations or independent pricing services which use prices provided by
market-makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Securities for which
market quotations are not readily available are valued at their respective fair
values as determined in good faith and in accordance with policies set by the
Board of Trustees. Investments in securities maturing in less than 60 days are
valued at cost, which, when combined with accrued interest, approximates market
value.
NOTE 3--FOREIGN CURRENCY TRANSACTIONS:
The books and records of the funds are maintained in U.S. dollars. Any
foreign currency amounts are translated into U.S. dollars on the following
basis:
(1) Market value of investment securities, other assets and
liabilities--at the exchange rates prevailing at the end of the day.
B-4
<PAGE>
(2) Purchases and sales of investment securities, income and expenses - at
the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets and the market values are presented at the foreign
exchange rates at the end of the day, the Funds do not isolate the portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from the changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gains or losses from the investments. Reported net realized foreign
exchange gains or losses arise from sales and maturities of short-term
securities, sales of foreign currencies, currency gains or losses realized
between the trade and settlement on securities transactions, the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books, and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign exchange gains and losses
arise from changes in the value of assets and liabilities other than investments
in securities at fiscal year end, resulting from changes in the exchange rate.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with investing U.S. companies and the U.S.
Government. These risks include but are not limited to re-evaluation of
currencies and future adverse political and economic developments which could
cause securities and their markets to be less liquid and prices more volatile
than those of the comparable U.S. Government.
NOTE 4 - CAPITAL SHARES:
The pro forma net asset value per share assumes additional shares of common
stock issued in connection with the proposed acquisition of Income & Growth Fund
and Balance Sheet Opportunities Fund by Balanced Fund as of June 30, 1999. The
number of additional shares issued was calculated by dividing the net asset
value of each Class of Income & Growth Fund and Balance Sheet Opportunities Fund
by the respective Class net asset value per share of Balanced Fund.
NOTE 5 - PRO FORMA OPERATING EXPENSES:
The accompanying pro forma financial statements reflect changes in fund
shares as if the merger had taken place on June 30, 1999. Income & Growth Fund
and Balance Sheet Opportunities Fund expenses were adjusted assuming Balanced
Fund's fee structure was in effect for the year ended June 30, 1999.
NOTE 6 - MERGER COSTS:
Merger costs are estimated at approximately $90,898 and are not included in
the pro forma statement of operations since these costs are not reoccurring.
These costs represent the estimated expense of both Funds carrying out their
obligations under the Plan and consist of management's estimate of legal fees,
accounting fees, printing costs and mailing charges related to the proposed
merger.
NOTE 7 - FEDERAL INCOME TAXES:
It is the policy of the Funds, to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute substantially all of their net investment income and any net
realized gains to their shareholders. Therefore, a federal income tax or excise
tax provision is not required. In addition, by distributing during each calendar
year substantially all of its net investment income and net realized capital
gains, each Fund intends not to be subject to any federal excise tax.
The Board of Directors intends to offset any net capital gains with any
available capital loss carryforward until each carryforward has been fully
utilized or expires. In addition, no capital gain distribution shall be made
until the capital loss carryforward has been fully utilized or expires.
The Income & Growth Fund, Balance Sheet Opportunities and Balanced Fund
will distribute substantially all its investment income and any realized gains
prior to the merger date.
B-5
<PAGE>
Pro Forma - Balanced Fund/Income & Growth Fund/Balance Sheet Opportunities Fund
PORTFOLIO OF INVESTMENTS
As of June 30, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
------------------------------------------ --------------------------------------------
INCOME BALANCE SHEET PRO FORMA INCOME BALANCE SHEET PRO FORMA
BALANCED & GROWTH OPPORTUNITIES COMBINED SECURITY RATE MATURITY BALANCED & GROWTH OPPORTUNITIES COMBINED
-------- ------ ------------- --------- -------- ---- -------- -------- ------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS: 64.42%
AEROSPACE/DEFENSE: 0.2%
20,000 20,000 BE Aerospace Inc. $373,750 $373,750
----------------------------------------------
373,750 373,750
----------------------------------------------
AUTOMOTIVE: 1.8%
2,900 2,900 Daimlerchrysler W/I 257,738 257,738
31,600 31,600 Dana Corp. 1,455,575 1,455,575
4,900 21,900 26,800 Ford Motor Co. 276,544 1,235,981 1,512,525
500 500 General Motors 33,000 33,000
10,624 10,624 Delphi Automotive Systems Corp. 197,203 197,203
----------------------------------------------
534,281 2,921,759 3,456,040
----------------------------------------------
BASIC MATERIAL: 1.5%
24,300 24,300 E.I. Du Pont de Nemours & Co. 1,659,994 1,659,994
27,300 27,300 Int'l Paper Co. 1,378,650 1,378,650
----------------------------------------------
3,038,644 3,038,644
----------------------------------------------
BANKS: 0.8%
3,100 15,800 18,900 Chase Manhattan Corp New 268,538 1,368,675 1,637,213
----------------------------------------------
268,538 1,368,675 1,637,213
----------------------------------------------
BEVERAGES: 0.4%
3,500 3,500 Anheuser Busch Company 248,281 248,281
4,200 4,200 Coca-Cola 262,500 262,500
7,400 7,400 Pepsico, Inc. 286,288 286,288
----------------------------------------------
797,069 797,069
----------------------------------------------
BROADCASTING: 2.3%
7,800 34,400 41,632 83,832 Comcast Corp. 299,813 1,322,250 1,600,230 3,222,293
30,000 30,000 Viacom, Inc. 1,320,000 1,320,000
----------------------------------------------
299,813 1,322,250 2,920,230 4,542,293
----------------------------------------------
CAPITAL GOODS: 4.6%
15,400 15,400 Allied Signal 970,200 970,200
20,000 20,000 Bell & Howell Co. 756,250 756,250
25,900 25,900 Briggs & Stratton Corp. 1,495,725 1,495,725
27,300 27,300 Danaher Corp. 1,586,812 1,586,812
26,700 26,700 Ingersoll-Rand Co. 1,725,487 1,725,487
15,800 15,800 PACCAR, Inc. 843,325 843,325
43,000 43,000 Pall Corp. 954,063 954,063
30,000 30,000 Westinghouse Air Brake Co. 778,125 778,125
----------------------------------------------
7,575,612 1,534,375 9,109,987
----------------------------------------------
CHEMICALS: 1.5%
122 122 Bergen Brunswig Corp. 2,105 2,105
4,300 4,300 Dupont 293,744 293,744
----------------------------------------------
293,744 2,105 295,849
----------------------------------------------
COMMUNICATIONS: 7.2%
2,400 20,300 22,700 Ameritech Corp New 176,400 1,492,050 1,668,450
</TABLE>
See Accompanying Notes to Financial Statements
B-6
<PAGE>
Pro Forma - Balanced Fund/Income & Growth Fund/Balance Sheet Opportunities Fund
PORTFOLIO OF INVESTMENTS
As of June 30, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
------------------------------------------- --------------------------------------------
INCOME BALANCE SHEET PRO FORMA INCOME & BALANCE SHEET PRO FORMA
BALANCED & GROWTH OPPORTUNITIES COMBINED SECURITY RATE MATURITY BALANCED GROWTH OPPORTUNITIES COMBINED
-------- ------ ------------- --------- -------- ---- -------- -------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5,200 22,688 22,207 50,095 AT&T Corp $290,225 $1,266,246 $1,239,428 $2,795,899
22,700 22,700 AT&T Corp--Liberty Media Group 834,225 834,225
28,100 28,100 BellSouth Corp. 1,317,187 1,317,187
23,146 23,146 Clear Channel Communications 1,595,627 1,595,627
18,500 18,500 Frontier Corp. 1,091,500 1,091,500
19,900 19,900 GTE Corp. 1,507,425 1,507,425
5,373 5,373 Internedia Communications 161,190 161,190
2,800 15,500 18,300 MCI Worldcom, Inc. 241,500 1,333,969 1,575,469
3,100 14,700 17,800 Nokia Corp ADR 283,844 1,345,969 1,629,813
---------------------------------------------
991,969 9,354,346 3,830,470 14,176,785
---------------------------------------------
COMPUTERS: 0.6%
4,300 4,300 Cisco Systems 277,350 277,350
12,400 12,400 Compaq Computer 293,725 293,725
7,000 7,000 Dell Computer Corporation 259,000 259,000
3,100 3,100 Hewlett Packard 311,550 311,550
---------------------------------------------
1,141,625 1,141,625
---------------------------------------------
COMPUTER SOFTWARE & SERVICE: 0.4%
2,600 2,600 America Online, Inc. 287,300 287,300
3,100 3,100 Microsoft Corp 279,581 279,581
4,000 4,000 Sun Microsystems 275,500 275,500
---------------------------------------------
842,381 842,381
---------------------------------------------
CONSUMER PRODUCTS: 8.4%
26,364 26,364 Chancellor Media Corp. 1,453,315 1,453,315
10,600 10,600 The Clorox Co. 1,132,212 1,132,212
2,800 2,800 Colgate-Palmolive Company 276,500 276,500
42,200 42,200 ConAgra, Inc. 1,123,575 1,123,575
36,000 36,000 Cox Communications, Inc. 1,325,250 1,325,250
30,000 30,000 EchoStar Communications Corp. 4,603,125 4,603,125
15,900 15,900 Entercom Communications Corp. 679,725 679,725
16,000 16,000 General Mills, Inc. 1,286,000 1,286,000
6,200 6,200 Gillette 254,200 254,200
19,755 19,755 Kimberly-Clark Corp. 1,126,035 1,126,035
40,400 40,400 The Kroger Co. 1,128,675 1,128,675
60,000 60,000 Packaged Ice 356,250 356,250
3,000 3,000 Proctor & Gamble 267,750 267,750
20,300 20,300 The Seagram Co. Ltd. 1,022,613 1,022,613
2,500 2,500 Sony Corp ADR 275,938 275,938
6,800 6,800 Unilever PLC-ADR 253,300 253,300
---------------------------------------------
1,327,688 8,824,085 6,412,690 16,564,463
---------------------------------------------
DEFENSE: 0.1%
6,900 6,900 Lockheed Martin Corp. 257,025 257,025
---------------------------------------------
257,025 257,025
---------------------------------------------
DIVERSIFIED CONGLOMERATE: 0.1%
2,200 2,200 Tyco International Ltd. 208,450 208,450
---------------------------------------------
208,450 208,450
---------------------------------------------
DRUGSTORES: 0.1%
9,100 9,100 Walgreen Co. 267,313 267,313
---------------------------------------------
267,313 267,313
---------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
B-7
<PAGE>
Pro Forma - Balanced Fund/Income & Growth Fund/Balance Sheet Opportunities Fund
PORTFOLIO OF INVESTMENTS
As of June 30, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
------------------------------------------ -------------------------------------------
INCOME BALANCE SHEET PRO FORMA INCOME & BALANCE SHEET PRO FORMA
BALANCED & GROWTH OPPORTUNITIES COMBINED SECURITY RATE MATURITY BALANCED GROWTH OPPORTUNITIES COMBINED
-------- ------ ------------- --------- -------- ---- -------- -------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EDP PERIPHERALS/SERVICES: 2.4%
27,900 27,900 Electronic Data Systems Corp. $1,578,093 $1,578,093
24,000 24,000 EMC Corp. 1,320,000 1,320,000
17,300 17,300 First Data Corp. 846,619 846,619
15,400 15,400 Lexmark International Group, Inc. 1,017,363 1,017,363
----------------------------------------------
4,762,075 4,762,075
----------------------------------------------
ELECTRICAL EQUIPMENT: 0.1%
2,600 2,600 General Electric 293,800 293,800
----------------------------------------------
293,800 293,800
----------------------------------------------
ELECTRONICS--SEMICONDUCTORS: 0.9%
4,600 4,600 Intel Corp 273,700 273,700
43,600 43,600 Taiwan Semiconductor Manufacturing 1,482,400 1,482,400
----------------------------------------------
273,700 1,482,400 1,756,100
----------------------------------------------
ENERGY: 6.4%
31,200 31,200 Anadarko Petroleum Corp. 1,148,550 1,148,550
42,700 42,700 Apache Corp 1,665,300 1,665,300
56,200 56,200 Baker Hughes, Inc. 1,882,700 1,882,700
25,000 25,000 Calpine Corp. 1,350,000 1,350,000
4,800 4,800 Duke Power Co. 261,000 261,000
34,700 34,700 Halliburton Co. 1,570,175 1,570,175
30,000 30,000 MidAmerican Energy Holdings Co. 1,038,750 1,038,750
15,500 15,500 Mobil Corp. 1,534,500 1,534,500
62,200 62,200 Noble Drilling Corp. 1,224,563 1,224,563
15,200 15,200 Texaco, Inc. 950,000 950,000
----------------------------------------------
261,000 9,975,788 2,388,750 12,625,538
----------------------------------------------
ENTERTAINMENT: 1.4%
30,000 30,000 The News Group, Ltd. 1,059,375 1,059,375
3,800 20,000 23,800 Time Warner, Inc. 279,300 1,470,000 1,749,300
----------------------------------------------
279,300 2,529,375 2,808,675
----------------------------------------------
FINANCIAL: 6.0%
2,300 2,300 American Express 299,288 299,288
2,446 2,446 American Int'l Group 286,335 286,335
13,400 13,400 Astoria Financial Corp. 588,762 588,762
36,200 36,200 Bank of New York Co. 1,328,087 1,328,087
5,700 33,450 39,150 Citigroup, Inc. 270,750 1,588,875 1,859,625
18,400 18,400 The Equitable Cos, Inc. 1,232,800 1,232,800
10,600 10,600 Equity Residential Properties Trust 477,663 477,663
4,200 4,200 Fannie Mae 287,175 287,175
4,800 4,800 Freddie Mac 278,400 278,400
9,000 9,000 J.P. Morgan & Co. 1,264,500 1,264,500
38,000 38,000 Mellon Bank Corp. 1,382,250 1,382,250
13,700 13,700 Morgan Stanley Dean Witter & Co. 1,404,250 1,404,250
12,300 12,300 Providian Financial Corp. 1,150,050 1,150,050
----------------------------------------------
1,421,947 10,417,237 11,839,184
----------------------------------------------
FOOD STORES: 0.8%
5,700 25,000 30,700 Safeway, Inc. 282,150 1,237,500 1,519,650
----------------------------------------------
282,150 1,237,500 1,519,650
----------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
B-8
<PAGE>
Pro Forma - Balanced Fund/Income & Growth Fund/Balance Sheet Opportunities Fund
PORTFOLIO OF INVESTMENTS
As of June 30, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
------------------------------------------ --------------------------------------------
INCOME BALANCE SHEET PRO FORMA INCOME & BALANCE SHEET PRO FORMA
BALANCED & GROWTH OPPORTUNITIES COMBINED SECURITY RATE MATURITY BALANCED GROWTH OPPORTUNITIES COMBINED
-------- ------ ------------- --------- -------- ---- -------- -------- ------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOODS: 0.5%
15,000 15,000 Canandaigua Brands, Inc. $ 786,562 $ 786,562
11,150 11,150 International Fast Food Corp. 4,906 4,906
11,900 11,900 Sara Lee 269,981 269,981
--------------------------------------------
269,981 791,468 1,061,449
--------------------------------------------
HEALTH CARE/HOSPITALS: 1.6%
44,900 44,900 Columbia/HCA Healthcare Corp. 1,024,281 1,024,281
30,000 30,000 HEALTHSOUTH Corp. 448,125 448,125
111,111 111,111 Intracel Corp. 1,694,443 1,694,443
2,363 2,363 LifePoint Hospitals, Inc. 31,753 31,753
2,363 2,363 Triad Hospitals, Inc. 31,901 31,901
--------------------------------------------
1,087,935 2,142,568 3,230,503
--------------------------------------------
INSURANCE: 0.1%
7,900 7,900 Allstate Corp. 283,413 283,413
--------------------------------------------
283,413 283,413
--------------------------------------------
LEISURE: 0.4%
43,500 43,500 Mirage Resorts, Inc. 728,625 728,625
21,000 21,000 Silverleaf Resorts, Inc. 135,188 135,188
--------------------------------------------
728,625 135,188 863,813
--------------------------------------------
MARINE: 0.1%
5,500 5,500 Carnival Corp Communication 266,750 266,750
--------------------------------------------
266,750 266,750
--------------------------------------------
MEDICAL: 0.1%
3,900 3,900 Novartis AG-ADR 284,735 284,735
--------------------------------------------
284,735 284,735
--------------------------------------------
METALS & MINERALS: 0.9%
4,000 24,300 28,300 Alcoa, Inc. 247,500 891,000 1,138,500
30,000 30,000 AK Steel Holding Co. 675,000 675,000
--------------------------------------------
247,500 891,000 675,000 1,813,500
--------------------------------------------
NATURAL GAS PIPELINE: 1.0%
3,700 19,900 23,600 Enron 302,475 1,626,825 1,929,300
--------------------------------------------
302,475 1,626,825 -- 1,929,300
--------------------------------------------
OIL & GAS: 1.6%
2,800 15,000 17,800 Chevron Corp. 266,525 1,427,812 1,694,337
3,600 3,600 Exxon Corp. 277,650 277,650
20,000 20,000 Global Marine, Inc. 308,750 308,750
30,000 30,000 Parker Drilling Co. 99,375 99,375
5,100 5,100 Royal Dutch Petroleum Company 307,275 307,275
40,000 40,000 Vintage Petroleum, Inc. 430,000 430,000
--------------------------------------------
851,450 1,427,812 838,125 3,117,387
--------------------------------------------
OIL WELL EQUIPMENT & SERVICE: 0.1%
4,300 4,300 Schlumberger Ltd. 273,856 273,856
--------------------------------------------
273,856 273,856
--------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
B-9
<PAGE>
Pro Forma - Balanced Fund/Income & Growth Fund/Balance Sheet Opportunities Fund
PORTFOLIO OF INVESTMENTS
As of June 30, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
------------------------------------------ -------------------------------------------
INCOME BALANCE SHEET PRO FORMA INCOME & BALANCE SHEET PRO FORMA
BALANCED & GROWTH OPPORTUNITIES COMBINED SECURITY RATE MATURITY BALANCED GROWTH OPPORTUNITIES COMBINED
-------- ------ ------------- --------- -------- ---- -------- -------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PHARMACEUTICALS: 1.6%
5,800 5,800 Abbott Laboratories $ 263,900 $ 263,900
3,700 3,700 Bristol-Myers Squibb Co. 260,619 260,619
2,900 14,900 17,800 Johnson & Johnson 284,200 1,460,200 1,744,400
4,100 4,100 Merck & Co. 303,400 303,400
2,700 2,700 Pfizer 296,325 296,325
4,500 4,500 Warner Lambert Co. 312,188 312,188
-------------------------------------------
1,720,631 1,460,200 3,180,831
-------------------------------------------
PUBLISHING: 0.1%
3,900 3,900 Gannett Co. 278,363 278,363
-------------------------------------------
278,363 278,363
-------------------------------------------
RESTAURANT: 0.1%
6,400 6,400 McDonalds Corp 264,400 264,400
-------------------------------------------
264,400 264,400
-------------------------------------------
RETAIL: 3.6%
3,700 3,700 Costco Companies, Inc. 296,231 296,231
4,300 4,300 Home Depot, Inc. 277,081 277,081
39,100 39,100 Ames Department Stores, Inc. 1,783,937 1,783,937
20,300 20,300 Dayton Hudson Corp. 1,319,500 1,319,500
23,500 23,500 J.C. Penney, Inc. 1,141,219 1,141,219
67,900 67,900 Pep Boys--Manny, Moe & Jack 1,468,338 1,468,338
5,600 5,600 Sears, Roebuck and Company 250,250 250,250
5,550 5,550 The Gap, Inc. 279,581 279,581
6,300 6,300 Wal-Mart Stores, Inc. 303,975 303,975
-------------------------------------------
1,407,118 5,712,994 7,120,112
-------------------------------------------
SEMICONDUCTORS: 0.9%
18,800 18,800 Altera Corp. 692,075 692,075
23,300 23,300 LSI Logic Corp. 1,074,713 1,074,713
-------------------------------------------
1,766,788 1,766,788
-------------------------------------------
SERVICES: 0.6%
50,000 50,000 Allied Waste Industries, Inc. 987,500 987,500
8,750 8,750 Coinstar, Inc. 251,016 251,016
-------------------------------------------
1,238,516 1,238,516
-------------------------------------------
TECHNOLOGY: 0.1%
4,000 4,000 Lucent Technologies 269,750 269,750
-------------------------------------------
269,750 269,750
-------------------------------------------
TELECOMMUNICATIONS EQUIPMENT: 0.8%
37,500 37,500 General Instrument Corp. 1,593,750 1,593,750
-------------------------------------------
1,593,750 1,593,750
-------------------------------------------
TOBACCO PRODUCTS: 0.1%
6,100 6,100 Philip Morris Companies, Inc. 245,143 245,143
-------------------------------------------
245,143 245,143
-------------------------------------------
TRANSPORTATION: 0.1%
5,100 5,100 FDX Corporation 276,675 276,675
-------------------------------------------
276,675 276,675
-------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
B-10
<PAGE>
Pro Forma - Balanced Fund/Income & Growth Fund/Balance Sheet Opportunities Fund
PORTFOLIO OF INVESTMENTS
As of June 30, 1999
<TABLE>
<CAPTION>
SHARES MARKET VALUE
------------------------------------------ ---------------------------------------------
INCOME & BALANCE SHEET PRO FORMA INCOME & BALANCE SHEET PRO FORMA
BALANCED GROWTH OPPORTUNITIES COMBINED SECURITY RATE MATURITY BALANCED GROWTH OPPORTUNITIES COMBINED
-------- ------ ------------- --------- -------- ---- -------- -------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UTILITIES: 2.7%
4,200 4,200 Bell Atlantic Corp. $274,575 $ 274,575
36,900 36,900 El Paso Energy Corp. 1,298,419 1,298,419
22,800 22,800 The Montana Power Co. 1,607,400 1,607,400
2,100 2,100 SBC Communications 121,800 121,800
10,200 10,200 Southern Co. 270,300 270,300
14,600 14,600 Texas Utilities Co. 602,250 602,250
28,200 28,200 Williams Cos., Inc. 1,200,262 1,200,262
-----------------------------------------------
666,675 4,708,331 5,375,006
-----------------------------------------------
17,950,706 82,047,131 27,050,110 127,047,947
-----------------------------------------------
PREFERRED STOCKS: 1.20%
BROADCASTING: 0.8%
17,047 17,047 Paxson
Communications
Corp. 12.500% 1,568,324 1,568,324
-----------------------------------------------
1,568,324 1,568,324
-----------------------------------------------
CABLE TELEVISION: 0.2%
5,910 5,910 21st Century
Telecom Group,
Inc. 13.750% 296,978 296,978
-----------------------------------------------
296,978 296,978
-----------------------------------------------
COMMUNICATIONS: 0.0%
309 309 IXC Communications 29,708 29,708
-----------------------------------------------
29,708 29,708
-----------------------------------------------
OIL & GAS: 0.0%
5,500 5,500 TCR Holding
Corp, $0.56 308 308
14,500 14,500 TCR Holding
Corp, $0.53 769 769
30,000 30,000 TCR Holding
Corp, $0.63 1,890 1,890
10,000 10,000 TCR Holding
Corp, $0.60 600 600
20,000 20,000 TransContinental
Refining
Corp., $.0683 18,660 18,660
-----------------------------------------------
22,227 22,227
-----------------------------------------------
TELECOMMUNICATIONS: 0.2%
5,000 5,000 Telecomunicacoes
Brasilerias SA 450,937 450,937
-----------------------------------------------
450,937 450,937
-----------------------------------------------
29,708 2,338,466 2,368,174
-----------------------------------------------
CONVERTIBLE PREFERRED
STOCKS: 0.71%
BROADCASTING: 0.7%
21,600 21,600 Unisite, Inc. 8.500% 1,396,008 1,396,008
-----------------------------------------------
1,396,008 1,396,008
-----------------------------------------------
PRINCIPAL AMOUNTS
-----------------
INVESTMENT TRUSTS: 1.49%
65,800 65,800 Blackrock Strategic
Term Trust 600,425 600,425
60,000 60,000 Blackrock 2001
Term Trust 540,000 540,000
190,000 190,000 Pilgrim Prime
Rate Trust 1,793,125 1,793,125
-----------------------------------------------
2,933,550 2,933,550
-----------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
B-11
<PAGE>
Pro Forma - Balanced Fund/Income & Growth Fund/Balance Sheet Opportunities Fund
PORTFOLIO OF INVESTMENTS
As of June 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL AMOUNTS MARKET VALUE
------------------------------------------ -------------------------------------------
INCOME BALANCE SHEET PRO FORMA INCOME & BALANCE SHEET PRO FORMA
BALANCED & GROWTH OPPORTUNITIES COMBINED SECURITY RATE MATURITY BALANCED GROWTH OPPORTUNITIES COMBINED
-------- ------ ------------- --------- -------- ---- -------- -------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DOMESTIC CORPORATE
BONDS: 19.03%
AEROSPACE: 0.1%
200,000 200,000 Rockwell
International
Corp. 5.2 1/15/98 $136,356 $136,356
---------------------------------------------
136,356 136,356
---------------------------------------------
AIRLINES: 0.1%
100,000 100,000 Atlas Air Inc. 9.375 11/15/06 97,750 97,750
66,884 66,884 Continental
Airlines 6.465 10/15/04 64,995 64,995
50,000 50,000 Trans World
Airlines 11.375 10/15/04 25,625 25,625
---------------------------------------------
188,370 188,370
---------------------------------------------
BROADCASTING: 0.1%
95,000 95,000 News America
Holdings 8.875 4/26/23 104,909 104,909
75,000 75,000 Source Media, Inc. 12 11/1/04 59,625 59,625
---------------------------------------------
164,534 164,534
---------------------------------------------
BUSINESS SERVICES: 0.1%
150,000 150,000 Unisys Corp. 12 4/15/03 163,500 163,500
---------------------------------------------
163,500 163,500
---------------------------------------------
COMMUNICATIONS: 2.3%
100,000 100,000 Covad Communications
Group 0.000% 3/15/08 54,375 54,375
50,000 50,000 Global Telesystems
Group 9.875% 2/15/05 49,875 49,875
500,000 500,000 ICG Services 0.000% 2/15/08 315,000 315,000
100,000 100,000 International
Cabletel 0.000% 4/15/05 96,000 96,000
3,000,000 3,000,000 MCI Communications,
Inc. 6.500% 4/15/10 2,883,780 2,883,780
250,000 250,000 MGC Communications,
Inc. 13.000% 10/1/04 229,375 229,375
250,000 250,000 Motorola, Inc. 5.220% 10/1/97 169,352 169,352
500,000 500,000 Pinnacle Holdings 0.000% 3/15/08 295,000 295,000
250,000 250,000 Winstar
Communications, Inc. 0.000% 3/1/07 287,500 287,500
100,000 100,000 Worldcom, Inc. 6.950% 8/15/28 94,795 94,795
---------------------------------------------
1,591,272 2,883,780 4,475,052
---------------------------------------------
COMPUTER SOFTWARE & SERVICES: 0.4%
1,000,000 1,000,000 Electronic Retailing
Systems
International 13.250% 2/1/04 285,000 285,000
2,100 2,100 Int'l Business
Machines 271,425 271,425
500,000 500,000 Rhythms
Netconnetions 0.000% 5/15/08 267,500 267,500
---------------------------------------------
538,925 285,000 823,925
---------------------------------------------
CONSUMER PRODUCTS: 3.3%
2,000,000 2,000,000 Delphi Automotive
Systems Corp. 6.125% 5/1/04 1,940,200 1,940,200
3,600,000 3,600,000 Avon Produts 6.550% 8/1/07 3,498,696 3,498,696
1,000,000 1,000,000 Packaged Ice 9.750% 2/1/05 985,000 985,000
---------------------------------------------
5,438,896 985,000 6,423,896
---------------------------------------------
CONSTRUCTION: 0.1%
100,000 100,000 McDermott, Inc. 9.375% 3/15/02 104,141 104,141
---------------------------------------------
104,141 104,141
---------------------------------------------
ELECTRONIC DATA PROCESSING: 1.3%
2,600,000 2,600,000 International
Business Machines
Corp. 6.450% 8/1/07 2,588,222 2,588,222
---------------------------------------------
2,588,222 2,588,222
---------------------------------------------
ENERGY: 2.0%
4,165,000 4,165,000 Halliburton Co. 5.625% 12/1/08 3,863,371 3,863,371
---------------------------------------------
3,863,371 3,863,371
---------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
B-12
<PAGE>
Pro Forma - Balanced Fund/Income & Growth Fund/Balance Sheet Opportunities Fund
PORTFOLIO OF INVESTMENTS
As of June 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL AMOUNTS MARKET VALUE
------------------------------------------ -------------------------------------------
INCOME BALANCE SHEET PRO FORMA INCOME & BALANCE SHEET PRO FORMA
BALANCED & GROWTH OPPORTUNITIES COMBINED SECURITY RATE MATURITY BALANCED GROWTH OPPORTUNITIES COMBINED
-------- ------ ------------- --------- -------- ---- -------- -------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL: 4.1%
20,000 20,000 Amresco, Inc. 9.875% 3/15/05 $16,200 $ 16,200
2,600,000 2,600,000 First Union Corp. 7.500% 7/15/06 2,679,820 2,679,820
2,600,000 2,600,000 Fleet Financial
Group, Inc. 7.190% 10/2/12 2,524,080 2,524,080
2,600,000 2,600,000 General Motors
Acceptance Corp. 6.125% 1/22/08 2,461,498 2,461,498
160,000 160,000 Merrill Lynch 6.875% 11/15/18 150,051 150,051
150,000 150,000 Resource America 12.000% 8/1/04 135,000 135,000
---------------------------------------------
301,251 7,665,398 7,966,649
---------------------------------------------
GAMING: 0.6%
2,000,000 2,000,000 Alladin Gaming
Holdings Corp. 13.500% 3/1/10 910,000 910,000
250,000 250,000 Majestic Star
Casino, LLC 10.875% 7/1/06 248,125 248,125
---------------------------------------------
248,125 910,000 1,158,125
---------------------------------------------
INSURANCE: 0.1%
110,000 110,000 Allmerica Financial
Corp. 7.625% 10/15/25 108,333 108,333
50,000 50,000 Liberty Financial 7.625% 11/15/28 49,079 49,079
75,000 75,000 Liberty Mutual
Insurance 7.697% 10/15/97 68,841 68,841
---------------------------------------------
226,253 226,253
---------------------------------------------
INVESTMENT COMPANIES: 0.1%
207,917 207,917 Dryden Investor 7.157% 7/23/08 196,577 196,577
---------------------------------------------
196,577 196,577
---------------------------------------------
LEISURE: 0.0%
75,000 75,000 Bally Total
Fitness Holdings 9.875% 10/15/07 72,563 72,563
---------------------------------------------
72,563 72,563
---------------------------------------------
MACHINERY & EQUIPMENT: 0.0%
50,000 50,000 United Rentals 9.500% 6/1/08 50,625 50,625
---------------------------------------------
50,625 50,625
---------------------------------------------
MEDIA & ENTERTAINMENT: 0.2%
50,000 50,000 Ascent
Entertainment 0.000% 12/15/04 35,437 35,437
100,000 100,000 Echostar DBS Corp. 9.375% 2/1/99 102,000 102,000
250,000 250,000 Hollywood
Entertainment 10.625% 8/15/04 246,250 246,250
---------------------------------------------
383,687 383,687
---------------------------------------------
MEDICAL: 0.3%
100,000 100,000 Abbey Healthcare 9.500% 11/1/02 100,000 100,000
1,500,000 1,500,000 Mediq 13.000% 6/1/09 577,500 577,500
---------------------------------------------
100,000 577,500 677,500
---------------------------------------------
OIL & GAS: 0.6%
100,000 100,000 Deeptech
International 12.000% 12/15/00 106,750 106,750
1,000,000 1,000,000 Forman Petroleum
Corp. 13.500% 6/1/04 505,000 505,000
534,583 534,583 TransAmerican
Refining Corp. 15.000% 12/1/03 531,910 531,910
110,000 110,000 Union Oil Co. of
California 7.500% 2/15/29 108,139 108,139
---------------------------------------------
214,889 1,036,910 1,251,799
---------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
B-13
<PAGE>
Pro Forma - Balanced Fund/Income & Growth Fund/Balance Sheet Opportunities Fund
PORTFOLIO OF INVESTMENTS
As of June 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL AMOUNTS MARKET VALUE
------------------------------------------ -------------------------------------------
INCOME BALANCE SHEET PRO FORMA INCOME & BALANCE SHEET PRO FORMA
BALANCED & GROWTH OPPORTUNITIES COMBINED SECURITY RATE MATURITY BALANCED GROWTH OPPORTUNITIES COMBINED
-------- ------ ------------- --------- -------- ---- -------- -------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PHARMACEUTICALS: 1.0%
1,700,000 1,700,000 American Home
Products 7.900% 2/15/05 $1,800,181 $1,800,181
250,000 250,000 Global Health 11.000% 5/1/08 192,500 192,500
---------------------------------------------
192,500 1,800,181 1,992,681
---------------------------------------------
PRINTING: 0.1%
200,000 200,000 Donnelley & Sons 6.625% 4/15/29 181,379 181,379
---------------------------------------------
181,379 -- 181,379
---------------------------------------------
REAL ESTATE & FINANCIAL
SERVICES: 0.0%
40,000 40,000 Equity Office 7.500% 4/19/29 36,733 36,733
---------------------------------------------
36,733 -- 36,733
---------------------------------------------
REGIONAL BANKS: 0.1%
200,000 200,000 Amsouth Bank 6.450% 2/1/08 189,748 189,748
---------------------------------------------
189,748 189,748
---------------------------------------------
RETAIL: 0.1%
100,000 100,000 Kmart Corp 6.780% 8/2/99 100,044 100,044
160,000 160,000 Lowes Companies 6.500% 3/15/29 142,688 142,688
---------------------------------------------
242,732 242,732
---------------------------------------------
SERVICES: 0.3%
500,000 500,000 ICF Kaiser
International,
Inc. 13.000% 12/1/03 490,000 490,000
---------------------------------------------
490,000 490,000
---------------------------------------------
SHIPPING: 0.1%
100,000 100,000 Sea Containers 12.500% 12/1/04 107,625 107,625
---------------------------------------------
107,625 107,625
---------------------------------------------
TECHNOLOGY: 0.0%
90,000 90,000 WMX Technologies 7.100% 8/1/26 91,763 91,763
---------------------------------------------
91,763 91,763
---------------------------------------------
TELECOMMUNICATIONS: 0.1%
975,000 975,000 Iridium LLC
Capital Corp. 13.000% 7/15/05 209,625 209,625
---------------------------------------------
209,625 209,625
---------------------------------------------
TRANSPORTATION: 0.2%
139,959 139,959 Federal Express 6.720% 1/15/22 133,130 133,130
300,000 300,000 Railcar Leasing 7.125% 1/15/13 304,281 304,281
---------------------------------------------
437,411 437,411
---------------------------------------------
UTILITIES: 1.4%
2,700,000 2,700,000 IES Utilities 6.625% 8/1/99 2,639,736 2,639,736
---------------------------------------------
2,639,736 2,639,736
---------------------------------------------
6,160,959 26,879,584 4,494,035 37,534,578
---------------------------------------------
FOREIGN CORPORATE BONDS: 2.15%
CABLE TELEVISION: 0.8%
1,500,000 1,500,000 Star Choice
Communications,
Inc. 13.000% 12/15/05 1,567,500 1,567,500
---------------------------------------------
-- 1,567,500 1,567,500
---------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
B-14
<PAGE>
Pro Forma - Balanced Fund/Income & Growth Fund/Balance Sheet Opportunities Fund
PORTFOLIO OF INVESTMENTS
As of June 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL AMOUNTS MARKET VALUE
------------------------------------------ --------------------------------------------
INCOME BALANCE SHEET PRO FORMA INCOME & BALANCE SHEET PRO FORMA
BALANCED & GROWTH OPPORTUNITIES COMBINED SECURITY RATE MATURITY BALANCED GROWTH OPPORTUNITIES COMBINED
-------- ------ ------------- --------- -------- ---- -------- -------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL: 0.5%
150,000 150,000 Abbey National PLC 6.700% 6/29/49 $139,841 $139,841
160,000 160,000 Amvescap PLC 6.375% 5/15/03 157,501 157,501
125,000 125,000 Bank of Scotland 7.000% 11/26/49 119,276 119,276
100,000 100,000 Cerro Negro Finance 7.330% 12/1/09 81,981 81,981
50,000 50,000 Endesa-Chile 8.125% 2/1/97 40,323 40,323
125,000 125,000 Inversiones CMPC 7.375% 6/15/05 117,051 117,051
110,000 110,000 PDVSA Finance, Ltd. 7.500% 11/15/28 80,108 80,108
30,000 30,000 Pemex Finance, Ltd. 6.300% 5/15/10 28,800 28,800
55,000 55,000 Pemex Finance, Ltd. 9.150% 11/15/18 51,700 51,700
200,000 200,000 United Utilities
PLC 6.875% 8/15/28 177,091 177,091
--------------------------------------------
993,672 993,672
--------------------------------------------
FOOD/BEVERAGE/TOBACCO: 0.2%
500,000 500,000 Fage Dairy
Industries SA 9.000% 2/1/07 452,500 452,500
--------------------------------------------
452,500 452,500
--------------------------------------------
OIL & GAS: 0.1%
750,000 750,000 Hurricane
Hydrocarbons 11.750% 11/1/04 116,250 116,250
--------------------------------------------
116,250 116,250
--------------------------------------------
SHIPPING: 0.4%
1,000,000 1,000,000 Equimar
Shipholdings Ltd. 9.875% 7/1/07 655,000 655,000
750,000 750,000 Navigator Gas
Transport 12.000% 6/30/07 206,250 206,250
--------------------------------------------
861,250 861,250
--------------------------------------------
UTILITIES: 0.1%
450,000 450,000 Panda Global
Energy Co. 12.500% 4/15/04 249,750 249,750
--------------------------------------------
249,750 249,750
--------------------------------------------
993,672 -- 3,247,250 4,240,922
--------------------------------------------
CONVERTIBLE BONDS: 1.30%
BROADCASTING: 0.8%
1,000,000 1,000,000 CBS Radio, Inc. 7.000% 6/30/11 1,594,500 1,594,500
-------------------------------------------
1,594,500 1,594,500
-------------------------------------------
FOOD/BEVERAGE/TOBACCO: 0.5%
1,500,000 1,500,000 International Fast
Food Corp. 11.000% 10/31/07 978,750 978,750
--------------------------------------------
978,750 978,750
--------------------------------------------
TELECOMMUNICATIONS: 0.0%
2,000,000 2,000,000 SA
Telecommunications 11.000% 10/31/07 -- --
--------------------------------------------
-- --
--------------------------------------------
-- -- 2,573,250 2,573,250
--------------------------------------------
U.S. GOVERNMENT AND AGENCIES: 1.99%
2,000,000 2,000,000 FHLMC 5.125% 10/15/08 1,811,840 1,811,840
574,053 574,053 FHLMC 6.000% 4/1/14 554,495 554,495
1,172,113 1,172,113 FHLMC 5.500% 1/1/14 1,110,202 1,110,202
240,000 240,000 FHR 6.500% 12/15/28 229,274 229,274
230,000 230,000 FHR 6.000% 12/15/28 227,270 227,270
--------------------------------------------
2,121,241 1,811,840 -- 3,933,081
--------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
B-15
<PAGE>
Pro Forma - Balanced Fund/Income & Growth Fund/Balance Sheet Opportunities Fund
PORTFOLIO OF INVESTMENTS
As of June 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL AMOUNTS MARKET VALUE
------------------------------------------ ---------------------------------------------
INCOME BALANCE SHEET PRO FORMA INCOME & BALANCE SHEET PRO FORMA
BALANCED & GROWTH OPPORTUNITIES COMBINED SECURITY RATE MATURITY BALANCED GROWTH OPPORTUNITIES COMBINED
-------- ------ ------------- --------- -------- ---- -------- -------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COLLATERIZED MORTGAGE
OBLIGATIONS AND
ASSET-BACKED SECURITIES: 1.15%
170,000 170,000 Amres 1997-3 A9 6.960% 3/25/27 $170,572 $170,572
170,000 170,000 ASC 1996-D3 A1C 7.400% 10/13/26 174,060 174,060
70,000 70,000 Comed 1998-1 A7 5.740% 12/25/10 64,583 64,583
241,757 241,757 CRIMI Mae 1998-1 A7 5.697% 10/20/01 230,861 230,861
170,000 170,000 CRIMI Mae 98-1 A1 7.000% 3/2/11 150,238 150,238
260,000 260,000 DLJCM 1998-CF2 A1B 6.240% 11/12/31 248,135 248,135
160,000 160,000 GS Mortgage
Securities 6.562% 4/13/31 155,772 155,772
276,098 276,098 MSC 1997-XL1 A1 6.590% 10/3/30 277,072 277,072
150,000 150,000 MSC 1998-XL2 6.170% 10/3/08 144,544 144,544
165,000 165,000 NASC 1998-D6 A1B 6.590% 3/17/28 160,477 160,477
125,000 125,000 Residential Asset
Securities 6.415% 7/25/29 121,869 121,869
240,000 240,000 SAST 1999-2 AF4 6.445% 8/25/26 235,214 235,214
124,731 124,731 SLCMT 1997-C1 6.875% 7/25/04 125,505 125,505
---------------------------------------------
2,258,902 -- -- 2,258,902
---------------------------------------------
U.S. TREASURY OBLIGATIONS: 1.30%
1,000,000 1,000,000 U.S. Treasury
Bonds 5.500% 8/15/28 915,620 915,620
300,000 300,000 U.S. Treasury
CPI Note 3.625% 1/15/08 291,468 291,468
200,000 200,000 U.S. Treasury 4.750% 2/15/04 192,438 192,438
1,170,000 1,170,000 U.S. Treasury Note 5.750% 8/15/03 1,167,052 1,167,052
---------------------------------------------
Total U.S.
Government Securities 2,566,578 -- -- 2,566,578
---------------------------------------------
WARRANTS: 0.13%
CABLE TELEVISION: 0.1%
5,000 5,000 21st Century Telecom
Group, Inc. 2/15/10 101,250 101,250
34,740 34,740 Star Choice Communications 12/15/05 69,501 69,501
---------------------------------------------
170,751 170,751
---------------------------------------------
COMPUTER/ELECTRONICS: 0.0%
1,000 1,000 Electronic Retailing
Systems International 2/1/04 5,000 5,000
---------------------------------------------
5,000 5,000
---------------------------------------------
CONSUMER PRODUCTS: 0.0% -
500 500 Packaged Ice 4/15/04 50,000 50,000
---------------------------------------------
50,000 50,000
---------------------------------------------
HEALTHCARE: 0.0%
1,500 1,500 Mediq, Inc. 6/1/09 15 15
---------------------------------------------
15 15
---------------------------------------------
HOTEL & GAMING 0.0%
20,000 20,000 Aladdin Gaming
Enterprises, Inc. 3/1/10 200 200
---------------------------------------------
200 200
---------------------------------------------
OIL & GAS: 0.0%
1,000 1,000 Forman Petroleum Corp. 6/1/04 1 1
---------------------------------------------
1 1
---------------------------------------------
SERVICES: 0.0%
3,500 3,500 ICF Kaiser International 12/31/99 35 35
---------------------------------------------
35 35
---------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
B-16
<PAGE>
Pro Forma - Balanced Fund/Income & Growth Fund/Balance Sheet Opportunities Fund
PORTFOLIO OF INVESTMENTS
As of June 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL AMOUNTS MARKET VALUE
------------------------------------------ ----------------------------------------------
INCOME BALANCE SHEET PRO FORMA INCOME & BALANCE SHEET PRO FORMA
BALANCED & GROWTH OPPORTUNITIES COMBINED SECURITY RATE MATURITY BALANCED GROWTH OPPORTUNITIES COMBINED
-------- ------ ------------- --------- -------- ---- -------- -------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS: 0.0%
500 500 Globalstar
Telecommunications, Ltd. 2/15/04 $ 27,625 $ 27,625
500 500 Iridium World
Communications, Inc. 7/15/05 250 250
1,000 1,000 UNIFI Communications, Inc. 5/1/07 10 10
------------------------------------------------
27,885 27,885
------------------------------------------------
-- -- 253,887 253,887
------------------------------------------------
REPURCHASE AGREEMENTS: 5.28%
4,356,000 Repurchase Agreement 4,356,000 4,356,000
2,122,000 Agreement with State Street Bank 2,122,000 2,122,000
and Trust bearing interest at 4.70%
dated 6/30/99, to be repurchased
07/01/99 in the amount of $2,122,277
and collaterized by $1,840,000 U.S.
Treasury Bonds, 10.75% due 5/15/03,
value $2,165,163 (cost $2,122,000)
3,938,000 Agreement with State Street Bank 3,938,000 3,938,000
and Trust bearing interest at 4.70%
due 7/1/99 (Collaterized by
$3,910,000 U.S. Treasury Notes, 6.375%
due 9/30/01, Market Value $4,020,849)
------------------------------------------------
Total Short-Term Investments 3,938,000 4,356,000 2,122,000 10,416,000
------------------------------------------------
TOTAL INVESTMENTS IN
SECURITIES: 100.16%
(Cost $161,688,110) 38,953,316 115,094,555 43,475,006 197,522,877
OTHER ASSETS AND LIABILITIES,
NET: (0.16%) (657,072) 181,641 159,259 (316,172)
------------------------------------------------
NET ASSETS: 100.00% 38,296,244 115,276,196 43,634,265 197,206,705
================================================
</TABLE>
See Accompanying Notes to Financial Statements
B-17
<PAGE>
Schedule Reflecting PROFORMA Combined Expense Ratios
Shown below are presentations of Annual Fund Operating Expenses on a PRO
FORMA basis. The table PROFORMA I presents annual fund operating expenses
assuming that the reorganizations with both the Income & Growth Fund and the
Balance Sheet Opportunities Fund are consummated. The table PROFORMA II presents
annual fund operating expenses assuming that the reorganization with the Income
& Growth Fund is consummated, but not the reorganization with the Balance Sheet
Opportunities Fund. The table PROFORMA III presents annual fund operating
expenses assuming that the reorganization with the Balance Sheet Opportunities
Fund is consummated, but not the reorganization with the Income & Growth Fund.
PROFORMA tables II and III are presented in case one of the reorganizations is
not consummated, which could occur if the reorganization is cancelled or because
shareholders do not approve it. These abbreviated PRO FORMA presentations are
presented, and not full PRO FORMA presentations of financial statements, because
the latter are not practicable and may be of limited utility.
PROFORMA I: Proposed Reorganization of Income & Growth Fund and Balance Sheet
Opportunities Fund into Balanced Fund
<TABLE>
<CAPTION>
DISTRIBUTION
AND
SHAREHOLDER
SERVICING TOTAL FUND FEE WAIVER
MANAGEMENT (12b-1) OTHER OPERATING BY NET FUND
FEES FEES(2) EXPENSES EXPENSES ADVISER(3) EXPENSES
---- ------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Balanced Fund(1) 0.75% 0.35% 0.51% 1.61% (0.26)% 1.35%
Income & Growth Fund 0.75% 0.30% 0.35% 1.40% -- --
Balance Sheet Opportunities Fund 0.65% 0.30% 0.57% 1.52% -- --
Pro Forma 0.75% 0.35% 0.22% 1.32% -- 1.32%
CLASS B
Balanced Fund 0.75% 1.00% 0.51% 2.26% (0.26)% 2.00%
Income & Growth Fund 0.75% 1.00% 0.37% 2.12% -- --
Balance Sheet Opportunities Fund 0.65% 1.00% 0.59% 2.24% -- --
Pro Forma 0.75% 1.00% 0.22% 1.97% -- 1.97%
CLASS C
Balanced Fund 0.75% 1.00% 0.51% 2.26% (0.26)% 2.00%
Income & Growth Fund 0.75% 1.00% 0.34% 2.09% -- --
Balance Sheet Opportunities Fund 0.65% 1.00% 0.57% 2.22% -- --
Pro Forma 0.75% 1.00% 0.22% 1.97% -- 1.97%
CLASS T
Balance Sheet Opportunities Fund
(only) 0.65% 0.75% 0.54% 1.94% -- --
Pro Forma 0.75% 0.75% 0.22% 1.72% -- 1.72%
</TABLE>
- ----------
(1) The Balanced Fund's fiscal year ends on June 30 while the Income & Growth
Fund's fiscal year ends on October 31 and the Balance Sheet Opportunities
Fund's fiscal year ends on December 31. To compare the expenses of the
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, as
adjusted for contractual changes.
(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) Pilgrim Investments has entered into an expense limitation agreement that
limits expenses (excluding interest, taxes, brokerage and extraordinary
expenses) for Balanced Fund to 1.35%, 2.00%, 2.00% and 1.75% for Class A,
Class B, Class C and Class T shares, respectively, subject to possible
later recoupment. Pilgrim Investments has agreed that the expense
limitations shown in the table will apply to Balanced Fund until at least
October 31, 2001.
B-18
<PAGE>
PROFORMA II : Proposed Reorganization of Income & Growth Fund into Balanced Fund
(assumes reorganization of Balance Sheet Opportunities Fund does
not occur)
<TABLE>
<CAPTION>
DISTRIBUTION
AND
SHAREHOLDER
SERVICING TOTAL FUND FEE WAIVER
MANAGEMENT (12B-1) OTHER OPERATING BY NET FUND
FEES FEES(2) EXPENSES EXPENSES ADVISER(3) EXPENSES
---- ------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Balanced Fund(1) 0.75% 0.35% 0.51% 1.61% (0.26)% 1.35%
Income & Growth Fund 0.75% 0.30% 0.35% 1.40% -- --
Pro Forma 0.75% 0.35% 0.27% 1.37% (0.02)% 1.35%
CLASS B
Balanced Fund 0.75% 1.00% 0.51% 2.26% (0.26)% 2.00%
Income & Growth Fund 0.75% 1.00% 0.37% 2.12% -- --
Pro Forma 0.75% 1.00% 0.27% 2.02% (0.02)% 2.00%
CLASS C
Balanced Fund 0.75% 1.00% 0.51% 2.26% (0.26)% 2.00%
Income & Growth Fund 0.75% 1.00% 0.34% 2.09% -- --
Pro Forma 0.75% 1.00% 0.27% 2.02% (0.02)% 2.00%
</TABLE>
- ----------
(1) The Balanced Fund's fiscal year ends on June 30 while the Income & Growth
Fund's fiscal year ends on October 31. To compare the expenses of the
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, as
adjusted for contractual changes.
(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) Pilgrim Investments has entered into an expense limitation agreement that
limits expenses (excluding interest, taxes, brokerage and extraordinary
expenses) for Balanced Fund to 1.35%, 2.00%, 2.00% and 1.75% for Class A,
Class B, Class C and Class T shares, respectively, subject to possible
later recoupment. Pilgrim Investments has agreed that the expense
limitations shown in the table will apply to Balanced Fund until at least
October 31, 2001.
B-19
<PAGE>
PROFORMA III: Proposed Reorganization of Balance Sheet Opportunities Fund into
Balanced Fund (assumes reorganization of Income & Growth Fund does
not occur)
<TABLE>
<CAPTION>
DISTRIBUTION
AND
SHAREHOLDER
SERVICING TOTAL FUND FEE WAIVER
MANAGEMENT (12B-1) OTHER OPERATING BY NET FUND
FEES FEES(2) EXPENSES EXPENSES ADVISER(3) EXPENSES
---- ------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Balanced Fund(1) 0.75% 0.35% 0.51% 1.61% (0.26)% 1.35%
Balance Sheet Opportunities Fund 0.65% 0.30% 0.57% 1.52% -- --
Pro Forma 0.75% 0.35% 0.38% 1.48% (0.13)% 1.35%
CLASS B
Balanced Fund 0.75% 1.00% 0.51% 2.26% (0.26)% 2.00%
Balance Sheet Opportunities Fund 0.65% 1.00% 0.59% 2.24% -- --
Pro Forma 0.75% 1.00% 0.38% 2.13% (0.13)% 2.00%
CLASS C
Balanced Fund 0.75% 1.00% 0.51% 2.26% (0.26)% 2.00%
Balance Sheet Opportunities Fund 0.65% 1.00% 0.57% 2.22% -- --
Pro Forma 0.75% 1.00% 0.38% 2.13% (0.13)% 2.00%
CLASS T
Balance Sheet Opportunities Fund
(only) 0.65% 0.75% 0.54% 1.94% -- --
Pro Forma 0.75% 0.75% 0.38% 1.88% (0.13)% 1.75%
</TABLE>
- ----------
(1) The Balanced Fund's fiscal year ends on June 30 while the Balance Sheet
Opportunities Fund's fiscal year ends on December 31. To compare the
expenses of the 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, as adjusted for contractual changes.
(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) Pilgrim Investments has entered into an expense limitation agreement that
limits expenses (excluding interest, taxes, brokerage and extraordinary
expenses) for Balanced Fund to 1.35%, 2.00%, 2.00% and 1.75% for Class A,
Class B, Class C and Class T shares, respectively, subject to possible
later recoupment. Pilgrim Investments has agreed that the expense
limitations shown in the table will apply to Balanced Fund until at least
October 31, 2001.
B-20
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Reference is made to Article V, Sections 5.2 and 5.3 of the Registrant's
Amended and Restated Declaration of Trust.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against policy as expressed in the Act and is, therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a Director, officer or controlling person of the Registrant in the
successful defense of any action, a suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 16. EXHIBITS
(1) (A) Form of Certificate of Trust of Registrant (b)
(B) Form of Certificate of Amendment of Certificate of Trust (b)
(C) Form of Amended and Restated Declaration of Trust (b)
(D) Form of Establishment of Additional Series (b)
(E) Form of Establishment of Additional Series (b)
(F) Form of Amendment No. 2 to Amended and Restated Declaration of
Trust (b)
(G) Form of Amendment No. 3 to Amended and Restated Declaration of
Trust (b)
(H) Form of Amendment No. 4 to Amended and Restated Declaration of
Trust (b)
(I) Form of Amendment No. 5 to Amended and Restated Declaration of
Trust (b)
(J) Form of Amendment No. 6 to Amended and Restated Declaration of
Trust (b)
(K) Form of Amendment No. 7 to Amended and Restated Declaration of
Trust (b)
(L) Form of Amendment No. 8 to Amended and Restated Declaration of
Trust (b)
(M) Form of Amendment No. 9 to Amended and Restated Declaration of
Trust (b)
(N) Form of Amendment No. 10 to Amended and Restated Declaration of
Trust (a)
(O) Form of Amendment No. 11 to Amended and Restated Declaration of
Trust (c)
C-1
<PAGE>
(P) Form of Amendment No. 12 to Amended and Restated Declaration of
Trust (c)
(Q) Form of Amendment No. 13 to Amended and Restated Declaration of
Trust (b)
(R) Form of Amendment No. 14 to Amended and Restated Declaration of
Trust (d)
(S) Form of Amendment No. 15 to Amended and Restated Declaration of
Trust (e)
(T) Form of Amendment No. 16 to Amended and Restated Declaration of
Trust (h)
(U) Form of Amendment No. 17 to Amended and Restated Declaration of
Trust (h)
(V) Form of Amendment No. 18 to Amended and Restated Declaration of
Trust (h)
(W) Form of Amendment No. 19 to Amended and Restated Declaration of
Trust (j)
(X) Form of Amendment No. 20 to Amended and Restated Declaration of
Trust (j)
(Y) Form of Amendment No. 21 to Amended and Restated Declaration of
Trust (k)
(Z) Form of Certificate of Amendment to Certificate of Trust (m)
(AA) Form of Amendment No. 22 to Amended and Restated Declaration of
Trust (m)
(BB) Form of Amendment No. 23 to Amended and Restated Declaration of
Trust (n)
(2) (A) Form of Amended Bylaws of Registrant (b)
(B) Form of Amendment to Section 2.5 of Bylaws of Registrant (b)
(3) Not Applicable
(4) (A) Form of Agreement and Plan of Reorganization between Pilgrim Mutual
Funds, on behalf of Pilgrim Balanced Fund, and Pilgrim Mayflower
Trust, on behalf of Pilgrim Income & Growth Fund Form of Agreement and
Plan of Reorganization between Pilgrim Mutual Funds, on behalf of
Pilgrim
(B) Balanced Fund, and Pilgrim Balance Sheet Opportunities Fund
(5) See Exhibits 1 and 2
(6) Form of Investment Management Agreement between the Trust and Pilgrim
Investments, Inc. (p)
(7) Form of Underwriting Agreement between the Trust and Pilgrim Securities,
Inc. (p)
(8) Not Applicable
(9) (A) Form of Custodian Agreement between Registrant and Brown Brothers
Harriman & Co. dated as of June 1, 1998. (k)
(B) Form of Amendment to Custodian Agreement between Registrant and Brown
Brothers Harriman & Co. (k)
(C) Form of Foreign Custody Manager Delegation Agreement between
Registrant and Brown Brothers Harriman & Co. dated as of June 1,
1998 (k)
C-2
<PAGE>
(D) Form of Novation Agreement to Custody Agreement with Brown Brothers
Harriman & Co. (n)
(E) Form of Appendix C to Custody Agreement with Brown Brothers
Harriman & Co. (n)
(F) Form of Novation Agreement to Foreign Custody Manager Delegation
Agreement with Brown Brothers Harriman & Co. (n)
(G) Form of Appendix C to Foreign Custody Manager Delegation Agreement
with Brown Brothers Harriman & Co. (n)
(H) Form of Custodian Agreement with Investors Fiduciary Trust Company (n)
(I) Form of Recordkeeping Agreement (n)
(10) (A) Form of Amended and Restated Service and Distribution Plan for
Class A (q)
(B) Form of Amended and Restated Service and Distribution Plan for
Class B (m)
(C) Form of Amended and Restated Service and Distribution Plan for
Class C (m)
(D) Form of Amended and Restated Service Plan for Class Q (m)
(E) Form of Amendment to Amended and Restated Service and Distribution
Plan for Class B (n)
(F) Form of Amendment to Amended and Restated Service and Distribution
Plan for Class C (n)
(G) Form of Service and Distribution Plan for Class T (r)
(H) Form of Multiple Class Plan Pursuant to Rule 18f-3 (n)
(I) Form of Amended and Restated Multiple Class Plan Pursuant to Rule
18f-3 (r)
(11) Form of Opinion and Consent of Counsel
(12) Form of Opinion and Consent of Counsel supporting tax matters and
consequences
(13) Form of Shareholder Service Agreement (n)
(14) Consents of Independent Auditors
(15) Not Applicable
(16) Powers of Attorney
(17) Not Applicable
- ----------
(a) Filed as an exhibit to Post-Effective Amendment No. 29 to Registrant's Form
N-1A Registration Statement on May 3, 1996 and incorporated herein by
reference.
(b) Filed as an exhibit to Post-Effective Amendment No. 30 to the Registrant's
Form N-1A Registration Statement on June 4, 1996 and incorporated herein by
reference.
C-3
<PAGE>
(c) Filed as an exhibit to Post-Effective Amendment No. 38 to Registrants Form
N-1A Registration Statement of January 3, 1997 and incorporated herein by
reference.
(d) Filed as an exhibit to Post-Effective Amendment No. 40 to Registrants form
N-1A Registration Statement on May 2, 1997 and incorporated herein by
reference.
(e) Filed as an exhibit to Post-Effective Amendment No. 43 to Registrant's Form
N-1A Registration Statement on July 14, 1997 and incorporated herein by
reference.
(f) Filed as an exhibit to Post-Effective Amendment No. 45 to Registrant's Form
N-1A Registration Statement on July 28, 1997 and incorporated herein by
reference.
(g) Filed as an exhibit to Post-Effective Amendment No. 47 to Registrant's Form
N-1A Registration Statement on September 2, 1997 and incorporated herein by
reference.
(h) Filed as an exhibit to Post-Effective Amendment No. 48 to Registrant's Form
N-1A Registration Statement on December 15, 1997 and incorporated herein by
reference.
(i) Filed as an exhibit to Post-Effective Amendment No. 60 to Registrant's Form
N-1A Registration Statement on June 15, 1998 and incorporated herein by
reference.
(j) Filed as an exhibit to Post-Effective Amendment No. 63 to Registrant's Form
N-1A Registration Statement on July 21, 1998 and incorporated herein by
reference.
(k) Filed as an exhibit to Post-Effective Amendment No. 66 to Registrant's Form
N-1A Registration Statement on August 14, 1998 and incorporated herein by
reference.
(l) Filed as an exhibit to Registrant's Form N-14 Registration Statement on
December 15, 1997 and incorporated herein by reference.
(m) Filed as an exhibit to Post-Effective Amendment No. 67 to the Registrant's
Form N-1A Registration Statement on March 25, 1999 and incorporated herein
by reference.
(n) Filed as an exhibit to Post-Effective Amendment No. 68 to the Registrant's
Form N-1A Registration Statement on May 24, 1999 and incorporated herein by
reference.
(o) Filed as an exhibit to Post-Effective Amendment No. 71 to the Registrant's
Form N-1A Registration Statement on July 1, 1999 and incorporated herein by
reference.
(p) Filed as an exhibit to Post-Effective Amendment No. 72 to the Registrant's
Form N-1A Registration Statement on September 2, 1999 and incorporated
herein by reference.
(q) Filed as an exhibit to Post-Effective Amendment No. 73 to the Registrant's
Form N-1A Registration Statement on October 29, 1999 and incorporated
herein by reference.
(r) Filed as an exhibit to Post-Effective Amendment No. 74 to the Registrant's
Form N-1A Registration Statement on November 5, 1999 and incorporated
herein by reference.
C-4
<PAGE>
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act 17 CFR
230.145(c), the reoffering prospectus will contain the information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
C-5
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form N-14 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Phoenix and State of Arizona on the 21st day of December, 1999.
PILGRIM MUTUAL FUNDS
By:
------------------------------------
John G. Turner*
Chairman
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
Trustee and President December 21, 1999
- -------------------------- (Chief Executive Officer)
Robert W. Stallings *
Trustee December 21, 1999
- --------------------------
Mary A. Baldwin *
Trustee December 21, 1999
- --------------------------
Al Burton *
Trustee December 21, 1999
- --------------------------
Paul S. Doherty *
Trustee December 21, 1999
- --------------------------
Robert B. Goode, Jr. *
Trustee December 21, 1999
- --------------------------
Alan L. Gosule *
Trustee December 21, 1999
- --------------------------
Mark L. Lipson *
C-6
<PAGE>
Trustee December 21, 1999
- --------------------------
Walter H. May *
Trustee December 21, 1999
- --------------------------
Jock Patton *
Trustee December 21, 1999
- --------------------------
David W.C. Putnam *
Trustee December 21, 1999
- --------------------------
John R. Smith *
Trustee December 21, 1999
- --------------------------
John G. Turner *
Trustee December 21, 1999
- --------------------------
David W. Wallace *
Principal Financial December 21, 1999
- -------------------------- Officer
Michael J. Roland *
* By: /s/ James M. Hennessy
-----------------------------
James M. Hennessy
Attorney-in-Fact**
** Executed pursuant to powers of attorney filed herewith.
C-7
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EXHIBIT INDEX
(4) (A) Form of Agreement and Plan of Reorganization between Pilgrim Mutual
Funds, on behalf of Pilgrim Balanced Fund, and Pilgrim Mayflower
Trust, on behalf of Pilgrim Income & Growth Fund
(4) (B) Form of Agreement and Plan of Reorganization between Pilgrim Mutual
Funds, on behalf of Pilgrim Balanced Fund, and Pilgrim Balance Sheet
Opportunities Fund
(11) Form of Opinion and Consent of Counsel
(12) Form of Opinion and Consent of Counsel supporting tax matters and
consequences
(14) Consents of Independent Auditors
(16) Powers of Attorney
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____ day of _____________, 1999, by and between Pilgrim Mutual Funds (the
"Acquiring Company"), a Delaware business trust with its principal place of
business at 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004, on
behalf of Pilgrim Balanced Fund (the "Acquiring Fund"), a separate series of the
Acquiring Company, and Pilgrim Mayflower Trust (the "Acquired Company"), a
Massachusetts business trust with its principal place of business at 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004, on behalf of Pilgrim Income
& Growth Fund (the "Acquired Fund"), a separate series of the Acquired Company.
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 and
Class C voting shares of beneficial interest (no par value per share) of the
Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the Acquiring
Fund of all liabilities of the Acquired Fund, and the distribution of the
Acquiring Fund Shares to the shareholders of the Acquired Fund in complete
liquidation of the Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
WHEREAS, the Acquired Company and the Acquiring Company 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 Trustees of the Acquiring Company have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the 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;
WHEREAS, the Trustees of the Acquired Company, have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the Acquired Fund and its shareholders and that the
interests of the existing shareholders of the Acquired Fund would not be diluted
as a result of this transaction; and
WHEREAS, the Acquiring Company, on behalf of the Acquiring Fund, presently
intends to acquire all of the assets and assume all of the liabilities of
Pilgrim Balance Sheet Opportunities Fund in a transaction substantially similar
to the one set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1 Subject to the requisite approval of the Acquired Fund shareholders and
the other terms and conditions herein set forth and on the basis of the
representations and warranties contained herein, the Acquired Company 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
1
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and Class C 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").
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 and Class C Acquiring Fund Shares to be so credited to Class A,
Class B and Class C 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 and Class C 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 and Class C 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
<PAGE>
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 Company's Declaration of Trust and then-current
prospectus or statement of additional information with respect to the Acquiring
Fund, and valuation procedures established by the Acquiring Company's Board of
Trustees.
2.2 The net asset value of a Class A, Class B and Class C 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 York Stock Exchange and
after the declaration of any dividends on the Valuation Date, using the
valuation procedures set forth in the Acquiring Company's Declaration of Trust
and then-current prospectus or statement of additional information with respect
to the Acquiring Fund, and valuation procedures established by the Acquiring
Company's Board of Trustees.
2.3 The number of the Class A, Class B and Class C 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 March ___, 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 Company 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
3
<PAGE>
ownership of outstanding Class A, Class B and Class C 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 Trustees
of the Acquiring Company and Board of Trustees of the Acquired Company, accurate
appraisal of the value of the net assets of the Acquiring Fund or the Acquired
Fund is impracticable, the Closing Date shall be postponed until the first
business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Acquired Company, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) The Acquired Fund is duly organized as a series of the Acquired
Company, which is a business trust duly organized and validly existing under the
laws of the Commonwealth of Massachusetts with power under the Trust's
Declaration of Trust to own all of its properties and assets and to carry on its
business as it is now being conducted;
(b) The Acquired Company 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;
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(f) The Acquired Fund is not engaged currently, and the execution, delivery
and performance of this Agreement will not result, in (i) a material violation
of the Acquired Company's 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
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
October 31, 1999 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 October 31, 1999, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund. For the purposes of this subparagraph (j), a
decline in net asset value per share of the Acquired Fund due to declines in
market values of securities in the Acquired Fund's portfolio, the discharge of
Acquired Fund liabilities, or the redemption of Acquired Fund Shares by
shareholders of the Acquired Fund shall not constitute a material adverse
change;
(k) On the Closing Date, all Federal and other tax returns 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;
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(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 Company (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 Company, and, subject to the
approval of the shareholders of the Acquired Fund, this Agreement will
constitute a valid and binding obligation of the Acquired Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(o) The information to be furnished by the Acquired Fund for use in
registration statements, proxy materials and other documents filed or to be
filed with any federal, state or local regulatory authority (including the
National Association of Securities Dealers, Inc.), which may be necessary in
connection with the transactions contemplated hereby, shall be accurate and
complete in all material respects and shall comply in all material respects with
Federal securities and other laws and regulations thereunder applicable thereto;
and
(p) The proxy statement of the Acquired Fund (the "Proxy Statement") to be
included in the Registration Statement referred to in paragraph 5.6, insofar as
it relates to the Acquired Fund, will, on the effective date of the Registration
Statement and on the Closing Date (i) not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not materially misleading provided, however,
that the representations and warranties in this subparagraph (p) shall not apply
to statements in or omissions from the Proxy Statement and the Registration
Statement made in reliance upon and in conformity with information that was
furnished by the Acquiring Fund for use therein, and (ii) comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and
the rules and regulations thereunder.
4.2 The Acquiring Company, on behalf of the Acquiring Fund, represents and
warrants to the Acquired Fund as follows:
(a) The Acquiring Fund is duly organized as a series of the Acquiring
Company, which is a business trust duly organized and validly existing under the
laws of the State of Delaware with power under the Acquiring Company'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 Acquiring Company 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, including the shares of the Acquiring Fund, 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;
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(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 Company's Declaration of Trust 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;
(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;
7
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(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 by the Acquiring Company and have been offered and sold in every
state and the District of Columbia in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities laws.
The Acquiring Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any Acquiring Fund Shares, nor is there
outstanding any security convertible into any Acquiring Fund Shares;
(m) The execution, delivery and performance of this Agreement will have
been fully authorized prior to the Closing Date by all necessary action, if any,
on the part of the Trustees of the Acquiring Company on behalf of the Acquiring
Fund and this Agreement will constitute a valid and binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights and to general equity
principles;
(n) The Class A, Class B and Class C 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
by the Acquiring Company;
(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 Acquiring Company or the Acquiring Fund,
the Registration Statement relating to the Acquiring Fund Shares issuable
hereunder, and the proxy materials of the Acquired Fund to be included in the
Registration Statement, and any amendment or supplement to the foregoing, will,
from the effective date of the Registration Statement through the date of the
meeting of shareholders of the Acquired Fund contemplated therein (i) not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not 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 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.
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5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 The Acquiring Fund and the Acquired Fund each will operate its business
in the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include the declaration
and payment of customary dividends and distributions, and any other distribution
that may be advisable.
5.2 The Acquired Company will call a meeting of the shareholders of the
Acquired Fund to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Class A, Class B and Class C
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof, other than in accordance with the
terms of this Agreement.
5.4 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all action, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
5.6 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement referred to in paragraph 4.1(p), all to
be included in a Registration Statement on Form N-14 of the Acquiring Company
(the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act
and the 1940 Act, in connection with the meeting of the shareholders of the
Acquired Fund to consider approval of this Agreement and the transactions
contemplated herein.
5.7 As soon as is reasonably practicable after the Closing, the Acquired
Fund will make a liquidating distribution to its shareholders consisting of the
Class A, Class B and Class C 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:
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6.1 All representations and warranties of the Acquiring Fund and the
Acquiring Company 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 Company, on behalf of 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 Company
and 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 Company and 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 Company and the
Acquiring Fund on or before the Closing Date; and
6.4 The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each Class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the 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 Company and 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 Company, on behalf of 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 Company, on behalf of 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 Company and 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 Company or the Acquired Fund on
or before the Closing Date;
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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 the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Acquired Company'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. 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 Company and Acquired Company 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 Company and
the Acquired Company. Notwithstanding anything herein to the contrary, neither
the Acquiring Company nor the Acquired Company may waive the condition set forth
in this paragraph 8.5.
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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 entitled to vote on the
Reorganization. The costs of the Reorganization shall include, but not be
limited to, costs associated with obtaining any necessary order of exemption
from the 1940 Act, preparation of the Registration Statement, printing and
distributing the Acquiring Fund's prospectus and the Acquired Fund's proxy
materials, legal fees, accounting fees, securities registration fees, and
expenses of holding shareholders' meetings. Notwithstanding any of the
foregoing, expenses will in any event be paid by the party directly incurring
such expenses if and to the extent that the payment by 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.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Company and the Acquired Company agree that neither
party has made any representation, warranty or covenant not set forth herein and
that this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing shall survive the Closing.
11. TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
and abandoned by mutual agreement of the parties hereto or by either party by
resolution of the party's Board of Trustees, 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 Company and the Acquiring Company; provided, however, that following
the meeting of the shareholders of the Acquired Fund called by the Acquired Fund
pursuant to paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Class A,
Class B and Class C 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 Company or to
the Acquired Company, 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.
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14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to its principles of conflicts
of laws.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5 It is expressly agreed that the obligations of the parties hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents, or employees of either party hereto personally, but shall bind only the
trust property of such party, as provided in the Declaration of Trust of each
party. 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 each party as provided in
the Declaration of Trust of each party.
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 MUTUAL FUNDS on behalf of its
BALANCED FUND series
By:
--------------------------------- ---------------------------------
SECRETARY
Its:
---------------------------------
Attest: PILGRIM MAYFLOWER TRUST on behalf of
THE PILGRIM INCOME & GROWTH FUND
By:
--------------------------------- ---------------------------------
SECRETARY
Its:
---------------------------------
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____ day of _____________, 1999, by and between Pilgrim Mutual Funds (the
"Acquiring Company"), a Delaware business trust with its principal place of
business at 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004, on
behalf of Pilgrim Balanced Fund (the "Acquiring Fund"), a separate series of the
Acquiring Company, and Pilgrim Balance Sheet Opportunities 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 beneficial interest (no par value per
share) of the Acquiring Fund (the "Acquiring Fund Shares"), the assumption by
the Acquiring Fund of all liabilities of the Acquired Fund, and the distribution
of the Acquiring Fund Shares to the shareholders of the Acquired Fund in
complete liquidation of the Acquired Fund as provided herein, all upon the terms
and conditions hereinafter set forth in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Company 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 Trustees of the Acquiring Company have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the 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;
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;
WHEREAS, the Acquiring Company, on behalf of the Acquiring Fund, presently
intends to acquire all of the assets and assume all of the liabilities of
Pilgrim Income & Growth Fund, a separate series of Pilgrim Mayflower Trust, in a
transaction substantially similar to the one set forth in this Agreement; and
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1 Subject to the requisite approval of the Acquired Fund shareholders and
the other terms and conditions herein set forth and on the basis of the
representations and warranties contained herein, the Acquired Fund agrees to
transfer all of the Acquired Fund's assets, as set forth in paragraph 1.2, to
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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").
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.
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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 Company's Declaration of Trust and then-current
prospectus or statement of additional information with respect to the Acquiring
Fund, and valuation procedures established by the Acquiring Company's Board of
Trustees.
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
York Stock Exchange and after the declaration of any dividends on the Valuation
Date, using the valuation procedures set forth in the Acquiring Company's
Declaration of Trust and then-current prospectus or statement of additional
information with respect to the Acquiring Fund, and valuation procedures
established by the Acquiring Company's Board of Trustees.
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 March ___, 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 Company 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
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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 Trustees
of the Acquiring Company 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
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
4
<PAGE>
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
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
5
<PAGE>
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;
(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 "Proxy Statement") to be
included in the Registration Statement referred to in paragraph 5.6, insofar as
it relates to the Acquired Fund, will, on the effective date of the Registration
Statement and on the Closing Date (i) not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not materially misleading provided, however,
that the representations and warranties in this subparagraph (p) shall not apply
to statements in or omissions from the Proxy Statement and the Registration
Statement made in reliance upon and in conformity with information that was
furnished by the Acquiring Fund for use therein, and (ii) comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and
the rules and regulations thereunder.
4.2 The Acquiring Company, on behalf of the Acquiring Fund, represents and
warrants to the Acquired Fund as follows:
(a) The Acquiring Fund is duly organized as a series of the Acquiring
Company, which is a business trust duly organized and validly existing under the
laws of the State of Delaware with power under the Acquiring Company'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 Acquiring Company 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, including the shares of the Acquiring Fund, 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;
6
<PAGE>
(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 Company's Declaration of Trust 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;
(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;
7
<PAGE>
(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 by the Acquiring Company and have been offered and sold in every
state and the District of Columbia in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities laws.
The Acquiring Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any Acquiring Fund Shares, nor is there
outstanding any security convertible into any Acquiring Fund Shares;
(m) The execution, delivery and performance of this Agreement will have
been fully authorized prior to the Closing Date by all necessary action, if any,
on the part of the Trustees of the Acquiring Company on behalf of the Acquiring
Fund and this Agreement will constitute a valid and binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights and to general equity
principles;
(n) The Class A, 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
by the Acquiring Company;
(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 Company or the Acquiring
Fund, the Registration Statement relating to the Acquiring Fund Shares issuable
hereunder, and the proxy materials of the Acquired Fund to be included in the
Registration Statement, and any amendment or supplement to the foregoing, will,
from the effective date of the Registration Statement through the date of the
meeting of shareholders of the Acquired Fund contemplated therein (i) not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not 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 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.
8
<PAGE>
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 The Acquiring Fund and the Acquired Fund each will operate its business
in the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include the declaration
and payment of customary dividends and distributions, and any other distribution
that may be advisable.
5.2 The Acquired Fund will call a meeting of the shareholders of the
Acquired Fund to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Class A, 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 Proxy Statement referred to in paragraph 4.1(p), all to
be included in a Registration Statement on Form N-14 of the Acquiring Company
(the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act
and the 1940 Act, in connection with the meeting of the shareholders of the
Acquired Fund to consider approval of this Agreement and the transactions
contemplated herein.
5.7 As soon as is reasonably practicable after the Closing, the Acquired
Fund will make a liquidating distribution to its shareholders consisting of the
Class A, 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:
9
<PAGE>
6.1 All representations and warranties of the Acquiring Company and 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 Company, on behalf of 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 Company
and 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 Company and 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 Company and the
Acquiring Fund on or before the Closing Date; and
6.4 The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each Class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the 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;
10
<PAGE>
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 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. 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 Company 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 Company nor the Acquired Fund may waive the condition set forth in
this paragraph 8.5.
11
<PAGE>
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 entitled to vote on the
Reorganization. The costs of the Reorganization shall include, but not be
limited to, costs associated with obtaining any necessary order of exemption
from the 1940 Act, preparation of the Registration Statement, printing and
distributing the Acquiring Fund's prospectus and the Acquired Fund's proxy
materials, legal fees, accounting fees, securities registration fees, and
expenses of holding shareholders' meetings. Notwithstanding any of the
foregoing, expenses will in any event be paid by the party directly incurring
such expenses if and to the extent that the payment by 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.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Company 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, 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 Company; provided, however, that following the
meeting of the shareholders of the Acquired Fund called by the Acquired Fund
pursuant to paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Class A,
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 Company 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.
12
<PAGE>
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to its principles of conflicts
of laws.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5 It is expressly agreed that the obligations of the parties hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents, or employees of either party hereto personally, but shall bind only the
trust property of such party, as provided in the Declaration of Trust of each
party. 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 each party as provided in
the Declaration of Trust of each party.
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 MUTUAL FUNDS on behalf of its
BALANCED FUND series
By:
--------------------------------- ---------------------------------
SECRETARY
Its:
---------------------------------
Attest: PILGRIM BALANCE SHEET OPPORTUNITIES FUND
By:
--------------------------------- ---------------------------------
SECRETARY
Its:
---------------------------------
13
[FORM OF OPINION]
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, DC 20006
___________, 2000
Pilgrim Mutual Funds
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
Re: Pilgrim Mutual Funds, on behalf of Pilgrim Balanced Fund
Dear Sirs:
We have acted as counsel to Pilgrim Mutual Funds, a Delaware business
trust, (the "Company"), and we have a general familiarity with the Company's
business operations, practices and procedures. You have asked for our opinion
regarding the issuance of shares of common stock by the Company in connection
with the acquisition by Pilgrim Balanced Fund , a series of the Company, of the
assets of Pilgrim Income & Growth Fund, a series of Pilgrim Mayflower Trust, and
Pilgrim Balance Sheet Opportunities Fund, which will be registered on a Form
N-14 Registration Statement (the "Registration Statement") to be filed by the
Company with the Securities and Exchange Commission.
We have examined originals or certified copies, or copies otherwise
identified to our satisfaction as being true copies, of various corporate
records of the Company and such other instruments, documents and records as we
have deemed necessary to render this opinion. We have assumed the genuineness of
all signatures, the authenticity of all documents examined by us and the
correctness of all statements of fact contained in those documents.
On the basis of the foregoing, it is our opinion that the shares of common
stock of the Company being registered under the Securities Act of 1933 in the
Registration Statement have been duly authorized and will be legally and validly
issued, fully paid and non-assessable by the Company upon transfer of the assets
of Pilgrim Income & Growth Fund and Pilgrim Balance Sheet Opportunities Fund
pursuant to the terms of the Agreements and Plans of Reorganization included in
the Registration Statement.
We hereby consent to use of this opinion as an exhibit to the Registration
Statement and to all references to our firm therein.
Very truly yours,
[FORM OF OPINION]
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, DC 20006
___________, 2000
Pilgrim Mutual Funds
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
Dear Sirs:
You have requested our opinion regarding certain Federal income tax
consequences to Pilgrim Income & Growth Fund ("Target Fund 1"), a separate
series of Pilgrim Mayflower Trust, a Massachusetts business trust, Pilgrim
Balance Sheet Opportunities Fund ("Target Fund 2", together with Target Fund 1,
the "Target Funds"), a Massachusetts business trust, to the holders of the
shares of beneficial interest (the "shares") of each Target Fund (the "Target
Shareholders"), and to Pilgrim Balanced Fund (the "Acquiring Fund"), a separate
series of Pilgrim Mutual Funds (the "Acquiring Company"), a Delaware business
trust, in connection with the proposed transfer of substantially all of the
properties of each Target Fund to the Acquiring Fund, in exchange solely for
voting shares of common stock of the Acquiring Fund ("Acquiring Fund Shares")
followed by the distribution of such Acquiring Fund Shares received by each
Target Fund in complete liquidation and termination of each Target Fund (the
"Reorganizations"), all pursuant to two Agreements and Plans of Reorganization
(each an "Agreement", collectively the "Agreements") dated as of ________ ___,
1999 between the applicable Target Fund and the Acquiring Company on behalf of
the Acquiring Fund.
For purposes of this opinion, we have examined and rely upon the Agreements
and the Acquiring Company's registration statement on Form N-14 (Securities Act
File No. 33-56094) (the "Form N-14") and such other documents and instruments as
we deem necessary or appropriate for purposes of rendering this opinion.
This opinion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), United States Treasury regulations, judicial decisions, and
administrative rulings and pronouncements of the Internal Revenue Service, all
as in effect on the date hereof. This opinion is conditioned upon the
Reorganizations taking place in the manner described in the Agreements and the
Form N-14 referred to above, and upon our receipt of satisfactory representation
letters from each Target Fund and from the Acquiring Company on behalf of the
Acquiring Fund.
Based upon the foregoing, it is our opinion that:
1. The acquisition by the Acquiring Fund of substantially all of the
properties of each Target Fund in exchange solely for Acquiring
Fund Shares followed by the distribution of Acquiring Fund Shares
to the shareholders of each Target Fund in exchange for their
Target Fund shares in complete liquidation and termination of
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each Target Fund will constitute a reorganization within the
meaning of section 368 of the Code. Each Target Fund and the
Acquiring Fund will each be "a party to a reorganization" within
the meaning of section 368(b) of the Code.
2. Each Target Fund will not recognize gain or loss upon the
transfer of substantially all of its assets to the Acquiring Fund
in exchange solely for Acquiring Fund Shares or upon distributing
to its shareholders the Acquiring Fund Shares received by the
applicable Target Fund in the transaction pursuant to the
Agreements. We do not express any opinion as to whether any
accrued market discount will be required to be recognized as
ordinary income.
3. The Acquiring Fund will recognize no gain or loss upon receiving
the properties of the Target Fund in exchange solely for
Acquiring Fund Shares.
4. The aggregated adjusted basis to the Acquiring Fund of the
properties of each Target Fund received by the Acquiring Fund in
the reorganization will be the same as the aggregate adjusted
basis of those properties in the hands of such Target Fund
immediately before the exchange.
5. The Acquiring Fund's holding periods with respect to the
properties of each Target Fund that the Acquiring Fund acquires
in the transaction will include the respective periods for which
those properties were held by such Target Fund (except where
investment activities of the Acquiring Fund have the effect of
reducing or eliminating a holding period with respect to an
asset).
6. The shareholders of each Target Fund will recognize no gain or
loss upon receiving Acquiring Fund shares solely in exchange for
the applicable Target Fund shares.
7. The aggregate basis of the Acquiring Fund shares received by a
shareholder of a Target Fund in the transaction will be the same
as the aggregate basis of such Target Fund shares surrendered by
the shareholder in exchange therefor.
8. A Target Fund shareholder's holding period for the Acquiring Fund
Shares received by the shareholder in the transaction will
include the holding period during which the shareholder held such
Target Fund shares surrendered in exchange therefor, provided
that the shareholder held such shares as a capital asset on the
date of Reorganizations.
We express no opinion as to the federal income tax consequences of the
Reorganizations except as expressly set forth above, or as to any transaction
except those consummated in accordance with the Plan.
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Our opinion as expressed herein, is solely for the benefit of Target Funds,
the Target Funds' shareholders, and the Acquiring Fund, and unless we give our
prior written consent, neither our opinion nor this opinion letter may be quoted
in whole or in part or relied upon by any other person.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the references to this firm in the Tax Section. In
giving this consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement of
Pilgrim Mutual Funds on Form N-14 of our reports dated December 11, 1998 and
February 5, 1999, on our audits of the financial statements and financial
highlights of Northstar Trust and The Northstar Funds, which reports are
included in the Annual Reports to Shareholders for the years ended October 31,
1998 and December 31, 1998, respectively, which are also incorporated by
reference into this Registration Statement.
PricewaterhouseCoopers LLP
New York, New York
December 20, 1999
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Pilgrim Mutual Funds:
In connection with the combined registration statement/proxy statement on Form
N-14 for Pilgrim Mutual Funds., we consent to incorporation by reference of our
report on the Pilgrim Balanced Fund and to the reference to our Firm under the
heading "Financial Highlights" in Exhibit B to the Prospectus.
/s/ KPMG LLP
Los Angeles, California
December 20, 1999
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Robert W. Stallings, James M. Hennessy, Jeffrey S. Puretz and Karen L.
Anderberg, and each of them his true and lawful attorney-in-fact as agent with
full power of substitution and resubstitution of him in his name, place, and
stead, to sign any and all registration statements on Form N-14 applicable to
the Pilgrim Mutual Funds, on behalf of the Pilgrim Balanced Fund and the Pilgrim
High Yield Fund II, and any amendment or supplement thereto, and to file the
same with all exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be
done by virtue hereof.
Dated: December 17, 1999
/s/ Michael A. Roland
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Michael A. Roland
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Robert W. Stallings, James M. Hennessy, Jeffrey S. Puretz and Karen L.
Anderberg, and each of them his true and lawful attorney-in-fact as agent with
full power of substitution and resubstitution of him in his name, place, and
stead, to sign any and all registration statements on Form N-14 applicable to
the Pilgrim Mutual Funds, on behalf of the Pilgrim Balanced Fund and the Pilgrim
High Yield Fund II, and any amendment or supplement thereto, and to file the
same with all exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be
done by virtue hereof.
Dated: December 17, 1999
/s/ Mary A. Baldwin, Ph.D
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Mary A. Baldwin, Ph.D
/s/ Al Burton /s/ Paul S. Doherty
- ------------------------------------- -------------------------------------
Al Burton Paul S. Doherty
/s/ Robert B. Goode, Jr. /s/ Alan L. Gosule
- ------------------------------------- -------------------------------------
Robert B. Goode, Jr. Alan L. Gosule
/s/ Mark Lipson /s/ Walter H. May
- ------------------------------------- -------------------------------------
Mark Lipson Walter H. May
/s/ Jock Patton /s/ David W.C. Putnam
- ------------------------------------- -------------------------------------
Jock Patton David W.C. Putnam
/s/ John R. Smith /s/ Robert W. Stallings
- ------------------------------------- -------------------------------------
John R. Smith Robert W. Stallings
/s/ John G. Turner /s/ David W. Wallace
- ------------------------------------- -------------------------------------
John G. Turner David W. Wallace
