As filed with the Securities and Exchange Commission on December 20, 2000
Securities Act File No. _______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
PILGRIM MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258
(Address of Principal Executive Offices) (Zip Code)
(800) 992-0180
(Registrant's Area Code and Telephone Number)
James M. Hennessy
ING Pilgrim Investments, Inc.
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
(Name and Address of Agents for Service)
With copies to:
Steven R. Howard Jeffrey S. Puretz
Paul, Weiss, Rifkind, Wharton & Garrison Dechert
1285 Avenue of the Americas 1775 Eye Street, N.W.
New York, NY 10019 Washington, DC 20006
----------
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
--------------------------------------------------------------------------------
It is proposed that this filing will become effective on January 19, 2001
pursuant to Rule 488 under the Securities Act of 1933.
--------------------------------------------------------------------------------
No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended.
================================================================================
<PAGE>
ING International Bond Fund
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
1-800-992-0180
__________ __, 2000
Dear Shareholder:
Your Board of Trustees has called a Special Meeting of Shareholders of the
ING International Bond Fund scheduled to be held at _:__ [a.m./p.m.], local
time, on February 22, 2001 at 7337 E. Doubletree Ranch Road, Scottsdale, Arizona
85258.
The Board of Trustees of ING Funds Trust, on behalf of the ING
International Bond Fund (a series of ING Funds Trust), has approved a
reorganization of ING International Bond Fund, which is managed by ING Mutual
Funds Management Co. LLC and is part of the ING Funds, into Pilgrim Strategic
Income Fund, which is managed by ING Pilgrim Investments, Inc. and is part of
the Pilgrim Funds (the "Reorganization"). If approved by shareholders, you would
become a shareholder of the Pilgrim Strategic Income Fund on the date that the
Reorganization occurs. Pilgrim Strategic Income Fund has investment objectives
and policies that are compatible to those of ING International Bond Fund, and
the Reorganization is expected to result in operating expenses that are lower
for ING International Bond Fund 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 ING Funds Trust
unanimously approved this proposal and recommended that shareholders vote "FOR"
the proposal.
A Proxy Statement/Prospectus that describes the Reorganization is enclosed.
We hope that you can attend the Special Meeting in person; however, we urge you
in any event to vote your shares by completing and returning the enclosed proxy
card 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 FEBRUARY 21,
2001.
We appreciate your participation and prompt response in this matter and
thank you for your continued support.
Sincerely,
Robert W. Stallings
President
<PAGE>
ING International Bond Fund
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
1-800-992-0180
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
ING INTERNATIONAL BOND FUND
SCHEDULED FOR FEBRUARY 22, 2001
To the Shareholders:
A Special Meeting of Shareholders of the ING International Bond Fund
("Special Meeting") is scheduled for February 22, 2001 at _:__ [a.m./p.m.],
local time, at 7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258.
At the Special Meeting, you will be asked to consider and approve the
following:
1. To approve an Agreement and Plan of Reorganization providing for the
acquisition of all of the assets and liabilities of each class of ING
International Bond Fund by Pilgrim Strategic Income Fund in exchange
for shares of the corresponding Class of Pilgrim Strategic Income Fund
and the subsequent liquidation of ING International Bond Fund; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournments thereof.
Shareholders of record at the close of business on December 26, 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 Board of Trustees
James M. Hennessy
Secretary
________ __, 2000
<PAGE>
TABLE OF CONTENTS
INTRODUCTION............................................................... 1
SUMMARY.................................................................... 1
Comparison of Investment Objectives and Strategies....................... 3
Comparison of Portfolio Characteristics.................................. 5
Relative Performance..................................................... 6
Comparison of Investment Techniques and Risks of the Funds............... 6
COMPARISON OF FEES AND EXPENSES............................................ 9
Annual Fund Operating Expenses........................................... 11
General Information...................................................... 12
Special Rules for Class A Shares of ING International Bond Fund.......... 13
ADDITIONAL INFORMATION ABOUT PILGRIM STRATEGIC INCOME FUND................. 14
Investment Personnel..................................................... 14
Performance of Pilgrim Strategic Income Fund............................. 14
INFORMATION ABOUT THE REORGANIZATION....................................... 15
ADDITIONAL INFORMATION ABOUT THE FUNDS..................................... 19
GENERAL INFORMATION ABOUT THE PROXY STATEMENT.............................. 20
Solicitation of Proxies.................................................. 20
Voting Rights............................................................ 20
Other Matters to Come Before the Special Meeting......................... 21
Shareholder Proposals.................................................... 21
Reports to Shareholders.................................................. 21
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 SCHEDULED FOR
FEBRUARY 22, 2001
ING INTERNATIONAL BOND FUND
(a series of ING Funds Trust)
Relating to the Reorganization into
PILGRIM STRATEGIC INCOME FUND
(a series of Pilgrim Mutual Funds)
(COLLECTIVELY, THE "FUNDS")
INTRODUCTION
This Proxy Statement/Prospectus provides you with information about a
proposed transaction. This transaction involves the transfer of all the assets
and liabilities of ING International Bond Fund to Pilgrim Strategic Income Fund
in exchange for shares of Pilgrim Strategic Income Fund (the "Reorganization").
ING International Bond Fund would then distribute to its shareholders their
portion of the shares of Pilgrim Strategic Income Fund it receives in the
Reorganization. The result would be a liquidation of ING International Bond
Fund. You would receive shares of Pilgrim Strategic Income Fund having an
aggregate value equal to the aggregate value of the shares you held of ING
International Bond Fund as of the close of business on the business day of the
closing of the Reorganization. You are being asked to vote on the Agreement and
Plan of Reorganization through which this transaction would be accomplished.
Because you, as a shareholder of ING International Bond Fund, are being
asked to approve a transaction that will result in your holding of shares of
Pilgrim Strategic Income Fund, this Proxy Statement also serves as a Prospectus
for Pilgrim Strategic Income Fund.
This Proxy Statement/Prospectus, which you should retain for future
reference, contains important information about Pilgrim Strategic Income Fund
that you should know. For a more detailed discussion of the investment
objectives, policies, restrictions and risks of Pilgrim Strategic Income Fund,
see the Prospectus (the "Pilgrim Prospectus") and the Statement of Additional
Information for Pilgrim Strategic Income Fund, each dated November 1, 2000,
which are incorporated herein by reference and which may be obtained, without
charge, by calling 1-800-992-0180. For a more detailed discussion of the
investment objectives, policies, restrictions and risks of ING International
Bond Fund, see the Prospectus (the "ING Prospectus") and Statement of Additional
Information for ING International Bond Fund, each dated November 6, 2000, which
are incorporated herein by reference and copies of which may be obtained without
charge by calling 1-800-992-0180. Each of the Funds also provides periodic
reports to its shareholders which highlight certain important information about
the Funds, including investment results and financial information. The annual
report for Pilgrim Strategic Income Fund dated June 30, 2000 is incorporated
herein by reference. You may receive a copy of the most recent annual report and
semi-annual report for either of the Funds, without charge, by calling
1-800-992-0180.
You can copy and review information about each Fund (including the SAI) at
the Commission's Public Reference Room in Washington, D.C. You may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-202-942-8090. Reports and other information about the Fund are
available on the EDGAR Database on the Commission's Internet site at
http://www.sec.gov. You may obtain copies of this information, after paying a
duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing the Commission's Public Reference Section,
Washington, D.C. 20549-0102.
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.
1
<PAGE>
SUMMARY
You should read this entire Proxy Statement/Prospectus carefully. For
additional information, you should consult the Pilgrim Prospectus, the ING
Prospectus, and the Agreement and Plan of Reorganization, which is attached
hereto as Appendix B.
THE PROPOSED REORGANIZATION. On November 16, 2000, the Board of Trustees of
ING Funds Trust, on behalf of the ING International Bond Fund, approved an
Agreement and Plan of Reorganization with respect to the ING International Bond
Fund (the "Reorganization Agreement"). Subject to shareholder approval, the
Reorganization Agreement provides for:
* the transfer of all of the assets of ING International Bond Fund to
Pilgrim Strategic Income Fund, in exchange for shares of Pilgrim
Strategic Income Fund;
* the assumption by Pilgrim Strategic Income Fund of all of the
liabilities of ING International Bond Fund;
* the distribution of Pilgrim Strategic Income Fund shares to the
shareholders of ING International Bond Fund; and
* the complete liquidation of ING International Bond Fund.
The Reorganization is expected to be effective upon the opening of business
on February 26, 2001, or on a later date as the parties may agree (the
"Closing"). As a result of the Reorganization, each shareholder of the following
Class of shares of ING International Bond Fund would become a shareholder of the
following Class of shares of Pilgrim Strategic Income Fund:
ING International Bond Fund Pilgrim Strategic Income Fund
--------------------------- -----------------------------
Class A Class A
Class B Class B
Class C Class C
Each shareholder would hold, immediately after the Closing, shares of each Class
of Pilgrim Strategic Income Fund having an aggregate value equal to the
aggregate value of the shares of the corresponding Class of ING International
Bond Fund held by that shareholder as of the close of business on the business
day of the Closing.
The Reorganization is one of many reorganizations that are proposed among
various ING Funds and various Pilgrim Funds. These reorganizations are occurring
in connection with the integration of the ING Funds and Pilgrim Funds, as part
of which the distributor, administrator and other service providers of the ING
Funds have been changed to those of the Pilgrim Funds. In September 2000, ING
Groep N.V., the indirect parent company of ING Mutual Funds Management Co. LLC
("IMFC"), the investment adviser to the ING Funds, acquired ReliaStar Financial
Corp., the indirect parent company of ING Pilgrim Investments, Inc. ("ING
Pilgrim Investments"), the investment adviser to the Pilgrim Funds. Management
of the ING Funds and the Pilgrim Funds have proposed the consolidation of a
number of the ING Funds and Pilgrim Funds that they believe have similar or
compatible investment policies. The proposed reorganizations are designed to
reduce the substantial overlap in funds offered by both the ING Funds and
Pilgrim Funds, thereby eliminating duplication of costs and other inefficiencies
arising from having similar portfolios within the same fund group. IMFC and ING
Pilgrim Investments also believe that the reorganizations may benefit fund
shareholders by resulting in surviving funds with a greater asset base. This is
expected to achieve economies of scale for shareholders and may provide greater
investment opportunities for the surviving funds or the potential to take larger
portfolio positions. The integration of the ING Funds and the Pilgrim Funds is
expected to provide further benefits to shareholders of the ING Funds because
shareholders will have the ability to exchange into Pilgrim Funds that offer the
same Class of shares. For information about a Pilgrim Fund, call the Pilgrim
Funds at 1-800-992-0180 to request a prospectus. You should read a fund's
prospectus before investing in the fund.
2
<PAGE>
In considering whether to approve the Reorganization, you should note that:
* The Funds have compatible investment objectives and policies. ING
International Bond Fund seeks high total return. Pilgrim Strategic
Income Fund seeks maximum total return. Pilgrim Strategic Income Fund
normally seeks to achieve its objective by investing primarily in
investment grade securities, and to a lesser extent in high yield debt
securities. ING International Bond Fund normally seeks its objective
by investing primarily in investment grade debt securities of issuers
located throughout the world, not including the U.S.
* If approved, shareholders of the ING International Bond Fund will no
longer participate in a Fund that invests primarily in fixed-income
securities of foreign issuers; rather, the surviving Fund normally
invests primarily in U.S. dollar denominated securities, with not more
than 30% of its assets in foreign currencies. Management of the ING
Funds and the Pilgrim Funds have determined that, after the
integration of the ING Funds and the Pilgrim Funds, they will no
longer offer a fund investing primarily in fixed-income securities of
foreign issuers. If the Reorganization is not approved, management may
ask the ING International Bond Fund's Board of Trustees to consider
other courses of action, including dissolving ING International Bond
Fund and distributing its net assets to shareholders on a pro rata
basis.
* The proposed Reorganization is expected to result in a reduction in
net operating expenses for shareholders of ING International Bond
Fund. For example, the operating expenses, expressed as a percentage
of net asset value per share for Class A shares, are as follows:
* Expense of ING International Bond Fund - before 2.30%
expense reimbursements from management (based
on the year ended June 30, 2000)(1):
* Expense of ING International Bond Fund - after 1.51%
expense reimbursements from management (based
on the year ended June 30, 2000)(1):
* Expense of Pilgrim Strategic Income Fund - before 2.53%
expense reimbursements from management (based on
the year ended June 30, 2000):
* Expense of Pilgrim Strategic Income Fund - after 0.96%
expense reimbursements from management (based on
the year ended June 30, 2000):
* Projected Expense of Surviving Fund After 1.82%
Reorganization (PRO FORMA) - before expense
reimbursements from management (based on the
year ended June 30, 2000):
* Projected Expense of Surviving Fund After 0.96%
Reorganization (PRO FORMA) - after expense
reimbursements from management (based on the
year ended June 30, 2000)(2):
(1) Based upon expenses incurred by the Fund for the twelve month
period ended June 30, 2000, adjusted for current expenses of
contracts and 12b-1 plans which were in effect on November 6,
2000.
(2) ING Pilgrim Investments has agreed that an expense limitation
agreement will apply to Pilgrim Strategic Income Fund until at
least October 31, 2001. There is no assurance that the expense
limitation agreement will remain in effect after that date.
* The Funds have affiliated management. ING Pilgrim Investments, 7337 E.
Doubletree Ranch Road, Scottsdale, Arizona 85258, is the investment
manager to Pilgrim Strategic Income Fund. IMFC, 7337 E. Doubletree
Ranch Road, Scottsdale, Arizona 85258, is the investment manager to
ING International Bond Fund. Both are affiliated subsidiaries of the
same holding company, ING Groep N.V. Different investment personnel,
however, manage the Funds. After the Reorganization, ING Pilgrim
Investments would continue to manage Pilgrim Strategic Income Fund,
which would include the assets from ING International Bond Fund.
Approval of the Reorganization Agreement requires the vote of a majority of
the shares present in person or by proxy of ING International Bond Fund.
AFTER CAREFUL CONSIDERATION, THE BOARD OF TRUSTEES OF THE ING FUNDS TRUST,
ON BEHALF OF ING INTERNATIONAL BOND FUND, UNANIMOUSLY APPROVED THE PROPOSED
REORGANIZATION. THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED
REORGANIZATION.
3
<PAGE>
COMPARISON OF INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
ING INTERNATIONAL BOND FUND PILGRIM STRATEGIC INCOME FUND
--------------------------- -----------------------------
<S> <C> <C>
INVESTMENT OBJECTIVE Seeks high total return. Seeks maximum total return.
INVESTMENT STRATEGIES * Under normal market conditions, will * Under normal conditions, the Fund
operate as a non-diversified fund and invests at least 60% of its total assets
invest at least 65% of its total assets in debt securities issued by U.S. and
in a portfolio of fixed income foreign corporations, U.S. and foreign
securities of international issuers governments, and their agencies and
which, at the time of investment, are instrumentalities that are rated in one
rated investment grade (for example, of the top four categories by an NRSRO,
rated at least BBB by Standard & Poor's or of comparable quality if unrated.
Rating Group or Baa by Moody's Investor These securities include bonds, notes,
Services) or have an equivalent rating mortgage-backed and asset-backed
by a Nationally Recognized Statistical securities with rates that are fixed,
Rating Organization ("NRSRO"), or of variable or floating.
comparable quality if unrated. This
portion of the portfolio will have * The Fund may invest up to 40% of its
investments in at least three different total assets in high yield debt
countries outside of the United States. securities, commonly known as "junk
bonds." There is no minimum credit
* There are no restrictions on the average rating for high yield debt securities in
maturity of the Fund or the maturity of which the Fund may invest.
any single investment. Maturities may
vary widely depending on the assessment * The "total return" sought by the Fund
of Baring Asset Management, Inc. and consists of income earned on the Fund's
Baring International Investment investments, plus capital appreciation,
Limited/Baring Asset Management (Asia) if any, which generally arises from
Limited (the "Sub-Advisers") of interest decreases in interest rates or improving
rate trends and other economic or market credit fundamentals for a particular
factors. sector or security.
* Fixed income securities eligible for * The Fund may invest in debt securities
purchase by the Fund consist of of any maturity; however, the average
securities issued or guaranteed by portfolio duration of the Fund will
foreign governments, their political generally range from two to eight years.
subdivisions, agencies or The Fund may invest up to 30% of its
instrumentalities; corporate bonds and total assets in securities payable in
debentures rated investment grade (for foreign currencies. The Fund may invest
example, rated at least BBB by Standard up to 10% of its assets in other
& Poor's Rating Group or Baa by Moody's investment companies that invest in
Investor Services); obligations of secured floating rate loans, including
supranational entities; repurchase up to 5% of its assets in Pilgrim Prime
agreements involving the foregoing Rate Trust, a closed-end investment
securities; loan participations; company.
short-term commercial paper of U.S. or
foreign issuers rated in the highest two * The Fund may also use options, futures
rating categories by an NRSRO; and swap contracts and interest rate and currency
agreements. swaps as hedging techniques. The Fund
does not invest in interest-only or
* Any remaining assets of the Fund may be principal-only stripped mortgage-backed
invested in securities denominated in securities.
U.S. dollars or foreign currencies which
are rated below investment grade (for
example, rated below BBB by Standard &
Poor's Rating Group or Baa by Moody'
Investor Services) or have an equivalent
rating by an NRSRO, or of comparable
quality if unrated; U.S. Government
securities; obligations of commercial
banks, savings and loan institutions,
and U.S. and foreign branches of foreign
banks that have total assets of $500
million or more as shown on the last
published financial statements at the
time of investment; mortgage backed and
asset-backed securities rated within the
three highest rating categories by an
NRSRO; receipts; and guaranteed
investment contracts. The Fund may also
use options and futures contracts
involving securities, securities
indices, interest rates and foreign
currencies.
* In choosing investments for the Fund,
the Sub-Advisers employ a highly
disciplined, four step investment
process that seeks to identify bond
market sectors expected to provide high
and sustainable real rates of return.
First, each Sub-Adviser performs a
comprehensive analysis of the relative
value of bond issuances between
countries and of currencies to determine
the degree of representation of such
countries and currencies in the Fund's
portfolio; Second, country allocations,
as well as currency and maturity
weightings, are reviewed by an
independent committee within that
Sub-Adviser; Third, that Sub-Adviser
selects investments within the selected
countries and currencies based on
comprehensive fundamental analysis; and
finally, in-house traders use specially
developed computer programs to
efficiently purchase the targeted
securities and currencies.
INVESTMENT ADVISER IMFC ING Pilgrim Investments
SUB-ADVISERS Baring International Investment None
Limited and Baring Asset Management,
Inc.
PORTFOLIO MANAGERS Paul Thursby Robert Kinsey and Ed Schriver
</TABLE>
As you can see from the chart above, the investment objectives and
strategies of the Funds are compatible.
4
<PAGE>
COMPARISON OF PORTFOLIO CHARACTERISTICS
The following table compares certain characteristics of the portfolios of
the Funds as of June 30, 2000.
<TABLE>
<CAPTION>
ING INTERNATIONAL PILGRIM STRATEGIC
BOND FUND INCOME FUND
--------- -----------
<S> <C> <C>
Net Assets $23,360,750 $11,380,184
Number of Holdings 26 46
Average Credit Quality AA A
Portfolio Turnover Rate
(12 months ended 6/30/00) 91% 168%
Average Dollar Weighted Duration 7.0 years 4.9 years
As a percentage of net assets:
Corporate Bonds 0.00% 36.94%
High Yield Bonds 0.00% 10.10%
U.S. Treasury Obligations 17.60% 24.23%
U.S. Government Agency Obligations 1.96% 19.49%
Collateralized Mortgage Obligations
and Asset-Backed Securities 0.00% 7.68%
Bonds in Foreign Currencies 62.51% 0.00%
Investment Companies 0.00% 5.03%
Preferred Securities 0.00% 2.48%
Short-Term Debt Investments
(1 year or less) 7.75% 2.54%
Top 5 Industries Foreign Bonds - 62.51% U.S. Treasury Obligations - 24.23%
(as a % of net assets) U.S. Treasury Obligations - 17.60% Financial - 14.11%
Supra-National Entity - 7.98% FNMA - 12.47%
Foreign Government Discount Communications - Wireline - 10.14%
Obligations - 4.81% Communications - Internet - 6.71%
FNMA - 1.96%
Top 10 Holdings Japan Government Bond 0.50%-7.54% U.S. Treasury Bonds 6.00% - 7.83%
(as a % of net assets) Japan Government Bond 0.30%-7.53% U.S. Treasury Note 6.125% - 7.10%
Bundesrepublic Deutschland 5.625%-6.75% FNMA 7.125% - 6.59%
US Treasury Bonds 7.50%-6.41% U.S. Treasury Note 7.25% - 5.81%
US Treasury Bonds 7.25%-6.36% Pilgrim Prime Rate Trust - 5.03%
US Treasury Note Inflation 4.25%-4.82% Charter Communications Holdings - 5.00%
French Discount Treasury Bills - 4.81% FNMA 7.25% - 4.43%
Swedish Government Bond 5.50% - 4.25% FHLMC 7.00% - 4.02%
Kingdom of Belgium 6.50%-4.24% U.S. Treasury Bonds 6.00% - 3.49%
Bonos y Oblig Del Estado 4.50%-4.05% Pinnacle Holdings - 3.03%
</TABLE>
5
<PAGE>
RELATIVE PERFORMANCE
The following table shows, for the periods shown, the average annual total
return for: (a) Class A shares of ING International Bond Fund; (b) Class A
shares of Pilgrim Strategic Income Fund; (c) the Salomon Brothers World
Government Bond Index; and (d) the Lehman Aggregate Bond Index. Performance of
the Funds in the table does not reflect the deduction of sales loads, and would
be lower if it did. The indices have an inherent performance advantage over the
Funds since they have no cash in their portfolios, impose no sales charges and
incur no operating expenses. An investor cannot invest directly in an index.
Total return is calculated assuming reinvestment of all dividends and capital
gain distributions at net asset value and excluding the deduction of sales
charges. Each Fund's past performance is not an indication of its future
performance.
<TABLE>
<CAPTION>
ING Pilgrim Salomon Brothers
Calendar Year International Strategic World Government Lehman Aggregate
Ended/period Bond Fund Income Fund(2)(3) Bond Index(4) Bond Index(5)
------------ --------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
12/31/99 -12.41% -1.16% -5.07% -0.82%
01/01/00 to
09/30/00(1) -3.25% 2.49% -6.38% 7.12%
</TABLE>
----------
(1) Not annualized.
(2) For more information about the performance of Pilgrim Strategic Income
Fund, see "Additional Information about Pilgrim Strategic Income Fund."
(3) Prior to May 24, 1999, an advisor other than ING Pilgrim Investments
managed the Fund.
(4) The Salomon Brothers World Government Bond Index is a widely recognized
unmanaged index of securities issued by foreign governments.
(5) The Lehman Aggregate Bond Index is an unmanaged index that measures the
performance of fixed income securities that are similar, but not identical,
to those in Pilgrim Strategic Income Fund's portfolio.
COMPARISON OF INVESTMENT TECHNIQUES AND RISKS OF THE FUNDS
Because the Funds have investment objectives and policies that are
compatible with each other, many of the risks of investing in Pilgrim Strategic
Income Fund are similar to the risks of investing in ING International Bond
Fund. A principal risk of an investment in each of the Funds is that you may
lose money on your investment. Each Fund's shares may go up or down, sometimes
rapidly and unpredictably. Market conditions, financial conditions of issuers
represented in the portfolio, investment policies, portfolio management, and
other factors affect the volatility of each Fund's shares.
CORPORATE DEBT SECURITIES. Each Fund 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 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.
6
<PAGE>
HIGH YIELD SECURITIES. Each Fund may invest in junk bonds, which are high
yield/high risk debt securities that are rated below investment grade by an
NRSRO or of comparable quality if not rated. ING International Bond Fund may
invest a portion of its assets in junk bonds. Pilgrim Strategic Income Fund may
invest up to 40% of its assets in junk bonds.
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 regarded as predominately 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 Fund 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-related 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-related securities with prepayment features may not increase as much as
other fixed income securities. The mortgage loans underlying a mortgage-related
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.
Each Fund may also 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 differ 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.
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities. U.S. Government securities include direct obligations of the U.S.
Treasury (such as U.S. Treasury bills, notes and bonds) and obligations issued
or guaranteed by U.S. Government agencies or instrumentalities. While U.S.
Government securities provide substantial protection against credit risk, they
do not protect investors against price declines in the securities due to
changing interest rates. Additionally, obligations of some U.S. Government
agencies, such as FNMA and FHLMC, are not backed by the full faith and credit of
the U.S. Government, and are subject to somewhat greater credit risk than direct
obligations of the U.S. Treasury.
7
<PAGE>
EQUITY SECURITIES. ING International Bond Fund may invest in equity
securities. Equity securities face market, issuer and other risks, and their
values may rise or fall, sometimes rapidly and unpredictably. Market risk is the
risk that the securities may decline in value due to factors affecting
securities markets generally, or those of a particular industry. Issuer risk is
the risk that the value of a security may decline for reasons related to the
issuer, such as changes in the financial condition of the issuer. Although
equity securities may offer the potential for greater long-term growth than most
debt securities, they generally have higher volatility.
FOREIGN SECURITIES. Each Fund may invest in foreign securities, and ING
International Bond Fund invests primarily in foreign securities. There are risks
in owning foreign currencies, 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.
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 or asset-backed
securities (described above) may also be considered derivatives. Pilgrim
Strategic Income Fund may use options, futures contracts and interest rate and
currency swaps as hedging techniques. Pilgrim Strategic Income Fund does not
invest in interest-only or principal-only stripped mortgage-backed securities.
ING International Bond Fund may engage in swap agreements. ING International
Bond Fund may also use options and futures contracts involving securities,
securities indices, interest rates and foreign currencies. A portion of ING
International Bond Fund's assets may be invested in mortgage-backed securities
and asset-backed debt securities rated within the three highest rating
categories by an NRSRO.
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 futures contract.
NON-DIVERSIFICATION. ING International Bond Fund is a non-diversified
investment company, meaning that, compared with other Funds, it may invest a
greater percentage of its assets in a particular issuer. The investment of the
Fund's assets in the securities of a small number of issuers may cause the
Fund's share price to fluctuate more than that of a diversified investment
company.
TEMPORARY DEFENSIVE STRATEGIES. For both Funds, when the adviser or
sub-adviser to the Fund anticipates unusual market or other conditions, the Fund
may temporarily depart from its principal investment strategies as a defensive
measure. To the extent a Fund is engaged in temporary defensive investments, it
will not be pursuing its investment objective.
8
<PAGE>
COMPARISON OF FEES AND EXPENSES
The following discussion describes and compares the fees and expenses of
the Funds. For further information on the fees and expenses of Pilgrim Strategic
Income Fund, see "Appendix C - Additional Information Regarding Pilgrim
Strategic Income Fund."
OPERATING EXPENSES. The operating expenses of Pilgrim Strategic Income
Fund, expressed as a ratio of expenses to average daily net assets ("expense
ratio"), are lower than those of ING International Bond Fund, after giving
effect to the expense limitation agreement for Pilgrim Strategic Income Fund and
ING International Bond Fund described below and as adjusted to reflect material
changes in expenses. For the 12 month period ending June 30, 2000, the net
expenses for Class A, Class B and Class C shares of Pilgrim Strategic Income
Fund are 0.96%, 1.36% and 1.36%, respectively, which are lower than those of the
corresponding Classes of ING International Bond Fund. Before giving effect to
the expense limitation agreement for the Funds, for the 12 month period ending
June 30, 2000, the total expenses for Class A, Class B and Class C shares of
Pilgrim Strategic Income Fund were 2.53%, 2.93% and 2.93%, respectively, which
are higher than those of Class A shares of ING International Bond Fund, but are
lower than those of Class B and Class C shares of ING International Bond Fund.
MANAGEMENT FEES. ING International Bond Fund has an annual management fee
equal to 1.00% of the Fund's average daily net assets. Pilgrim Strategic Income
Fund has an annual management fee equal to 0.45% of the Fund's average daily net
assets. In addition, Pilgrim Strategic Income Fund's management fee is subject
to the following breakpoint fee structure:
ASSETS TO WHICH FEE APPLIES MANAGEMENT FEE
--------------------------- --------------
First $500 million 0.45%
Next $250 million 0.40%
Assets over $750 million 0.35%
DISTRIBUTION AND SERVICE FEES. The distribution (12b-1) and service fees
for Class A shares of Pilgrim Strategic Income Fund are, in the aggregate,
identical to those of the corresponding Class of ING International Bond Fund.
The distribution (12b-1) and service fees for Class B and Class C shares of
Pilgrim Strategic Income Fund are, in the aggregate, 0.25% lower than those of
the corresponding Classes of shares of ING International Bond Fund.
EXPENSE LIMITATION ARRANGEMENTS. Expense limitation arrangements are in
place for both ING International Bond Fund and Pilgrim Strategic Income Fund.
Under the terms of the expense limitation contract for ING International
Bond Fund, IMFC has agreed to limit the expenses of the Fund, excluding
interest, taxes, brokerage and extraordinary expenses. The current expense
limitation contract for the Fund provides that it will remain in effect until
February 28, 2001. There is no assurance that the expense limitation contract
will be continued after that date. The expense limitations for Classes A, B, and
C of ING International Bond Fund are 1.51%, 2.16% and 2.16%, respectively.
Under the terms of the expense limitation agreement for Pilgrim Strategic
Income Fund, ING Pilgrim Investments has agreed to limit the expenses of the
Fund, excluding interest, taxes, brokerage, and extraordinary expenses subject
to possible reimbursement to ING Pilgrim Investments within three years. The
current expense limitation contract for the Fund provides that it will remain in
effect through at least October 31, 2001. The expense limitations for Class A,
B, and C of Pilgrim Strategic Income Fund are 0.95%, 1.35%, and 1.35%,
respectively.
Even with the expense limitation contracts, the expense ratio for each
Class of ING International Bond Fund was higher than the expense ratio for the
corresponding Class of Pilgrim Strategic Income Fund. For the year ended June
30, 2000, for example, the expense ratio for Class A shares of ING International
Bond Fund was 1.51% compared to 0.96% for Pilgrim Strategic Income Fund. This
information and similar information for the other Classes is shown in the table
below entitled "Annual Fund Operating Expenses."
9
<PAGE>
EXPENSE TABLE. The current expenses of each of the Funds and estimated PRO
FORMA expenses giving effect to the proposed Reorganization are shown in the
following table. Expenses for the Funds are based upon the operating expenses
incurred by Classes A, B and C shares of the Fund for the twelve-month period
ended June 30, 2000. PRO FORMA fees show estimated fees of Pilgrim Strategic
Income Fund after giving effect to the proposed Reorganization, as adjusted to
reflect contractual changes. PRO FORMA numbers are estimated in good faith and
are hypothetical.
ANNUAL FUND OPERATING EXPENSES (UNAUDITED)
(expenses that are deducted from Fund assets, shown as a ratio of expenses to
average daily net assets) (1)
<TABLE>
<CAPTION>
DISTRIBUTION
(12b-1) AND
SHAREHOLDER TOTAL FUND
MANAGEMENT SERVICING OTHER OPERATING FEE WAIVER NET FUND
FEES FEES(2) EXPENSES EXPENSES BY ADVISER(4) EXPENSES
---- ------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
ING International Bond Fund 1.00% 0.35% (3) 0.95% 2.30% -0.79% 1.51%
Pilgrim Strategic Income Fund 0.45% 0.35% 1.73% 2.53% -1.57% 0.96%
Surviving Fund After
Reorganization (PRO FORMA) 0.45% 0.35% 1.02% 1.82% -0.86% 0.96%
CLASS B
ING International Bond Fund 1.00% 1.00% 0.95% 2.95% -0.79% 2.16%
Pilgrim Strategic Income Fund 0.45% 0.75% 1.73% 2.93% -1.57% 1.36%
Surviving Fund After
Reorganization (PRO FORMA) 0.45% 0.75% 1.02% 2.22% -0.86% 1.36%
CLASS C
ING International Bond Fund 1.00% 1.00% 0.95% 2.95% -0.79% 2.16%
Pilgrim Strategic Income Fund 0.45% 0.75% 1.73% 2.93% -1.57% 1.36%
Surviving Fund After
Reorganization (PRO FORMA) 0.45% 0.75% 1.02% 2.22% -0.86% 1.36%
</TABLE>
----------
(1) The fiscal year end for Pilgrim Strategic Income Fund is June 30. The
fiscal year end for ING International Bond Fund is October 31. Expenses of
the Pilgrim Strategic Income Fund are based upon expenses incurred by the
Fund for the twelve month period ended June 30, 2000. Expenses for the ING
International Bond Fund are based upon expenses incurred by the Fund for
the twelve month period ended June 30, 2000, adjusted for current expenses
of contracts and 12b-1 plans which were in effect on November 6, 2000. Pro
forma expenses have been adjusted for anticipated applicable 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.
(3) Prior to November 6, 2000, the Class A distribution fee was 0.50% and the
shareholder servicing fee was 0.25%.
(4) ING Pilgrim Investments has entered into an expense limitation agreement
that limits expenses (excluding interest, taxes, brokerage and
extraordinary expenses) for Pilgrim Strategic Income Fund to 0.95%, 1.35%
and 1.35% for Class A, Class B and Class C shares, respectively, subject to
possible later recoupment. ING Pilgrim Investments has agreed that the
expense limitations shown in the table will apply to Pilgrim Strategic
Income Fund until at least October 31, 2001. There is no assurance that the
expense limitation agreement will remain in effect after that date. IMFC
has entered into an expense limitation agreement that limits expenses
(excluding interest, taxes, brokerage and extraordinary expenses) for ING
International Bond Fund to annual rates of 1.51%, 2.16% and 2.16% for Class
A, Class B and Class C shares, respectively, subject to possible later
recoupment. IMFC has agreed that the expense limitations shown in the table
will apply to ING International Bond Fund until at least February 28, 2001.
10
<PAGE>
Following the Reorganization and in the ordinary course of business as a
mutual fund, certain holdings of ING International Bond Fund that are
transferred to Pilgrim Strategic Income Fund in connection with the
Reorganization may be sold. Such sales may result in increased transaction costs
for Pilgrim Strategic Income Fund, and the realization of taxable gains or
losses for Pilgrim Strategic Income Fund.
EXAMPLES. The examples are intended to help you compare the cost of investing in
each of the Funds. The examples assume 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 examples also assume 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.
<TABLE>
<CAPTION>
PILGRIM STRATEGIC PRO FORMA:
ING INTERNATIONAL BOND FUND INCOME FUND THE FUNDS COMBINED**
-------------------------------- ------------------------------- --------------------------------
1 3 5 10 1 3 5 10 1 3 5 10
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ---- ----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $697 $1,159 $1,647 $2,985 $568 $1,082 $1,622 $3,092 $568 $ 941 $1,337 $2,443
Class B 798 1,213 1,752 3,118* 638 1,058 1,604 3,045* 638 912 1,311 2,386*
Class C 398 913 1,552 3,271 238 758 1,404 3,140 238 612 1,111 2,487
</TABLE>
----------
* The ten year calculations for Class B shares assume conversion of the Class
B shares to Class A shares at the end of the eighth year following the date
of purchase.
** Estimated.
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
PILGRIM STRATEGIC PRO FORMA:
ING INTERNATIONAL BOND FUND INCOME FUND THE FUNDS COMBINED**
-------------------------------- ------------------------------- --------------------------------
1 3 5 10 1 3 5 10 1 3 5 10
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ---- ----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $697 $1,159 $1,647 $2,985 $568 $1,082 $1,622 $3,092 $568 $ 941 $1,337 $2,443
Class B 298 913 1,552 3,118* 138 758 1,404 3,045* 138 612 1,111 2,386*
Class C 298 913 1,552 3,271 138 758 1,404 3,140 138 612 1,111 2,487
</TABLE>
----------
* The ten year calculations for Class B shares assume conversion of the Class
B shares to Class A shares at the end of the eighth year following the date
of purchase.
** Estimated.
11
<PAGE>
GENERAL INFORMATION
Class A, Class B and Class C shares of Pilgrim Strategic Income 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
class of shares of ING International Bond Fund held by that shareholder
immediately prior to the Reorganization.
In addition, the period that the shareholder held shares of ING
International Bond Fund will be included in the holding period of Pilgrim
Strategic Income Fund shares for purposes of calculating any contingent deferred
sales charge. Similarly, Class B shares of Pilgrim Strategic Income Fund issued
to a shareholder in connection with the Reorganization will convert to Class A
shares eight years after the date that the Class B shares of ING International
Bond Fund were purchased by the shareholder
TRANSACTION FEES ON NEW INVESTMENTS
(fees paid directly from your investment)
CLASS A CLASS B CLASS C
------- ------- -------
Maximum sales charge (load) imposed on
purchases (as a percentage of offering
price) Pilgrim Strategic Income Fund 4.75%(1) None None
Maximum deferred sales charge (load)
(as a percentage of the lower of original
purchase price or redemption proceeds)
Pilgrim Strategic Income Fund None(2) 5.00%(3) 1.00%(4)
----------
(1) Reduced for purchases of $50,000 and over. See "Class A Shares: Initial
Sales Charge Alternative" in Appendix C.
(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 C.
(3) Imposed upon redemptions within 6 years of purchase. The fee has scheduled
reductions after the first year. See "Class B Shares: Deferred Sales Charge
Alternative" in Appendix C and "Shareholder Guide - Sales Charge
Calculation" in the Pilgrim Prospectus.
(4) Imposed upon redemptions within 1 year from purchase.
Neither Pilgrim Strategic Income Fund nor ING International Bond Fund have
any redemption fees, exchange fees or sales charges on reinvested dividends.
SPECIAL RULES FOR CLASS A SHARES OF ING INTERNATIONAL BOND FUND
Prior to November 6, 2000, the contingent deferred sales charge on
purchases of Class A shares of ING International Bond Fund in excess of $1
million was different than the contingent deferred sales charge on similar
purchases of Pilgrim Strategic Income Fund. Shareholders of ING International
Bond Fund that purchased Class A shares subject to a contingent deferred sales
charge prior to November 6, 2000 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 6, 2000 were
as follows:
TIME PERIOD DURING
CDSC WHICH CDSC APPLIES
--------------------- ---------------------
11/06/00 Before 11/06/00 Before
and After 11/06/00 and After 11/06/00
--------- -------- --------- --------
CDSC ON PURCHASES OF:
$1,000,000 to $2,499,999 1.00% 1.00% 24 Months 12 Months
$2,500,000 to $4,999,999 0.50% 1.00% 12 Months 12 Months
$5,000,000 and over 0.25% 1.00% 12 Months 12 Months
12
<PAGE>
ADDITIONAL INFORMATION ABOUT PILGRIM STRATEGIC INCOME FUND
INVESTMENT PERSONNEL
The following individuals share responsibility for the day-to-day
management of Pilgrim Strategic Income Fund:
* Robert K. Kinsey, Vice President of ING Pilgrim Investments, has
served as a Portfolio Manager of Pilgrim Strategic Income Fund since
May 24, 1999. Mr. Kinsey manages Pilgrim Strategic Income Fund's
assets that are invested in securities other than high yield debt
securities. Prior to joining ING 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.
* Ed Schriver, Senior Vice President of ING Pilgrim Investments, has
served as a Senior Portfolio Manager of the high yield portion of
Pilgrim Strategic Income Fund's assets since October 2000. Prior to
joining ING Pilgrim Investments, Mr. Schriver was a Senior High Yield
Analyst for Dreyfus Corporation since 1998. From 1996 to 1997, Mr.
Schriver was the President of Crescent City Research, an investment
research and software firm. Prior to 1996, Mr. Schriver was President
of an SEC registered investment adviser and held various senior
portfolio management positions.
PERFORMANCE OF PILGRIM STRATEGIC INCOME FUND
The bar chart and table that follow provide some indication of the risks of
investing in Pilgrim Strategic Income Fund by showing (on a calendar year basis)
changes in Pilgrim Strategic Income Fund's annual total return from year to year
and by showing (on a calendar year basis) how Pilgrim Strategic Income Fund's
average annual returns for one year and since inception compare to those of the
Lehman Aggregate Bond Index. The information in the bar chart is based on the
performance of the Class A shares of Pilgrim Strategic Income 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.
Pilgrim Strategic Income Fund's past performance is not necessarily an
indication of how the Fund will perform in the future. Total returns include
reinvestment of dividends and capital gains distributions, if any. All indices
are unmanaged.
CALENDAR YEAR-BY-YEAR RETURNS(1), (2)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-1.16
----------
(1) During the period shown in the chart, the Fund's best quarterly performance
was 0.81% for the quarter ended December 31, 1999, and the Fund's worst
quarterly performance was -1.23% for the quarter ended June 30, 1999. The
Fund's year-to-date return as of September 30, 2000 was 2.49%.
(2) Prior to May 24, 1999, an adviser other than ING Pilgrim Investments
managed the Fund.
13
<PAGE>
The table below shows what the average annual total returns of Pilgrim
Strategic Income Fund would equal if you averaged out actual performance over
various lengths of time, compared to the Lehman Aggregate Bond Index. The Lehman
Aggregate Bond Index has an inherent performance advantage over Pilgrim
Strategic Income Fund since it has no cash in its portfolio, imposes no sales
charges and incurs no operating expenses. An investor cannot invest directly in
an index. Pilgrim Strategic Income 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, 1999
SINCE
1 YEAR INCEPTION(5)
------ ------------
Pilgrim Strategic Income Fund - Class A (1) -5.83% -1.74%
Pilgrim Strategic Income Fund - Class B (2) -6.15% -1.29%
Pilgrim Strategic Income Fund - Class C (3) -2.46% 1.31%
Lehman Aggregate Bond Index(4) -0.82% 2.37%
----------
(1) Reflects deduction of sales charge of 4.75%.
(2) Reflects deduction of deferred sales charge of 5% and 4%, respectively, for
the 1 year and since inception returns.
(3) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(4) The Lehman Aggregate Bond Index is an unmanaged index that measures the
performance of fixed income securities that are similar, but not identical,
to those in the Fund's portfolio.
(5) Class A, B and C commenced operations on July 27, 1998.
The table below shows the performance of Pilgrim Strategic Income Fund if
sales charges are not reflected.
AVERAGE ANNUAL TOTAL RETURNS for the periods ended December 31, 1999
SINCE
1 YEAR INCEPTION
------ ---------
Pilgrim Strategic Income Fund - Class A -1.16% 1.65%
Pilgrim Strategic Income Fund - Class B -1.50% 1.31%
Pilgrim Strategic Income Fund - Class C -1.53% 1.31%
For a discussion by the adviser regarding the performance of Pilgrim
Strategic Income Fund for the year ended June 30, 2000, see Appendix A to this
Proxy Statement/Prospectus. Additional information about Pilgrim Strategic
Income Fund is included in Appendix C to this Proxy Statement/Prospectus.
INFORMATION ABOUT THE REORGANIZATION
THE REORGANIZATION AGREEMENT. The Reorganization Agreement provides for the
transfer of all of the assets and liabilities of ING International Bond Fund to
Pilgrim Strategic Income Fund in exchange for shares of Pilgrim Strategic Income
Fund. ING International Bond Fund will distribute the shares of Pilgrim
Strategic Income Fund received in the exchange to its shareholders and then ING
International Bond Fund will be liquidated.
14
<PAGE>
After the Reorganization, each shareholder of ING International Bond Fund
will own shares in Pilgrim Strategic Income Fund having an aggregate value equal
to the aggregate value of each respective Class of shares in ING International
Bond Fund held by that shareholder as of the close of business on the business
day of the Closing. Shareholders of the following Classes of shares of ING
International Bond Fund will receive shares of the following Class of Pilgrim
Strategic Income Fund:
ING International Bond Fund Pilgrim Strategic Income Fund
--------------------------- -----------------------------
Class A Class A
Class B Class B
Class C Class C
In the interest of economy and convenience, shares of Pilgrim Strategic Income
Fund generally will not be represented by physical certificates, unless you
request the certificates in writing.
Until the Closing, shareholders of ING International Bond Fund will
continue to be able to redeem their shares. Redemption requests received after
the Closing will be treated as requests received by Pilgrim Strategic Income
Fund for the redemption of its shares.
The obligations of the Funds under the Reorganization Agreement are subject
to various conditions, including approval of the shareholders of ING
International Bond Fund. The Reorganization Agreement also requires that each 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
effective the transactions contemplated by the Reorganization Agreement. The
Reorganization Agreement may be terminated by mutual agreement of the parties or
on certain other grounds. Please refer to Appendix B to review the terms and
conditions of the Reorganization Agreement.
REASONS FOR THE REORGANIZATION. The Reorganization is one of many
reorganizations that are proposed among various ING Funds and various Pilgrim
Funds. These reorganizations are occurring in connection with the integration of
the ING Funds and Pilgrim Funds, as part of which the distributor,
administrator, and other service providers of the ING Funds have been changed to
those of the Pilgrim Funds. In September 2000, ING Groep N.V., the indirect
parent company of IMFC, the investment adviser to the ING Funds, acquired
ReliaStar Financial Corp., the indirect parent company of ING Pilgrim
Investments, the investment adviser to the Pilgrim Funds. Management of the ING
Funds and the Pilgrim Funds have proposed the consolidation of a number of the
ING Funds and Pilgrim Funds that they believe have similar or compatible
investment policies. The proposed reorganizations are designed to reduce the
substantial overlap in funds offered by both the ING Funds and Pilgrim Funds,
thereby eliminating duplication of costs and other inefficiencies arising from
having similar portfolios within the same fund group. IMFC and ING Pilgrim
Investments also believe that the reorganizations may benefit fund shareholders
by resulting in surviving funds with a greater asset base. This is expected to
achieve economies of scale for shareholders and may provide greater investment
opportunities for the surviving funds or the potential to take larger portfolio
positions. The integration of the ING Funds and the Pilgrim Funds is expected to
provide further benefits to shareholders of the ING Funds because shareholders
will have the ability to exchange into Pilgrim Funds that offer the same Class
of shares. For information about a Pilgrim Fund, call the Pilgrim Funds at
1-800-992-0180 to request a prospectus. You should read a fund's prospectus
before investing in the fund.
The Reorganization of ING International Bond Fund into Pilgrim Strategic
Income Fund was proposed because of management's current belief that
international bonds are not currently an attractive asset class for U.S.
investors, and an international bond fund is not likely to attract sufficient
assets to become a viable mutual fund, whereas funds that invest in
international bonds as well as other types of fixed-income investments,
including domestic fixed-income investments, have greater potential to become
viable funds.
15
<PAGE>
Management of the ING Funds and the Pilgrim Funds have determined that,
after the integration of the ING Funds and the Pilgrim Funds, they will no
longer offer a fund investing primarily in fixed-income securities of foreign
issuers. If the Reorganization is not approved, management may ask the ING
International Bond Fund's Board of Trustees to consider other courses of action,
including dissolving ING International Bond Fund and distributing its net assets
to shareholders on a pro rata basis.
The proposed Reorganization was presented to the Board of Trustees of ING
Funds Trust, on behalf of ING International Bond Fund, for consideration at a
meeting held on October 25, 2000, and for approval at a meeting held on November
16, 2000. 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 ING Funds Trust, determined that the interests of the
shareholders of ING International Bond Fund will not be diluted as a result of
the proposed Reorganization, and that the proposed Reorganization is in the best
interests of ING International Bond Fund and its shareholders.
The Reorganization will allow ING International Bond Fund's shareholders to
continue to participate in a professionally-managed portfolio consisting
primarily of domestic and foreign investment grade and high yield debt
securities. As shareholders of Pilgrim Strategic Income Fund, these shareholders
will continue to be able to exchange into other mutual funds in the group of
Pilgrim Funds that offer the same Class of shares in which such shareholder will
be invested. A list of Pilgrim Funds and Classes available after the
Reorganization is attached as Appendix D.
The Board of Trustees of Pilgrim Strategic Income Fund has also approved
the reorganization of another fund, Pilgrim Global Income Fund, into Pilgrim
Strategic Income Fund. If Shareholders of Pilgrim Global Income Fund approve
that reorganization, it is expected that that reorganization will occur during
the first quarter of 2001.
BOARD CONSIDERATIONS The Board of Trustees of ING Funds Trust, on behalf of
ING International Bond Fund, in recommending the proposed transaction,
considered a number of factors, including the following:
(1) the plans of management to integrate the ING Funds and the Pilgrim
Funds;
(2) expense ratios and information regarding fees and expenses of ING
International Bond Fund and Pilgrim Strategic Income Fund, including
the expense limitation arrangements offered by IMFC for ING
International Bond Fund and ING Pilgrim Investments for Pilgrim
Strategic Income Fund;
(3) estimates that show that combining the Funds is expected to result in
lower gross expense ratios in the absence of management subsidies,
because of economies of scale expected to result from an increase in
the asset size of the reorganized Fund;
(4) the Reorganization would not dilute the interests of ING International
Bond Fund's current shareholders;
(5) the relative investment performance and risks of Pilgrim Strategic
Income Fund as compared to ING International Bond Fund;
(6) the compatibility of Pilgrim Strategic Income Fund's investment
objectives, policies and restrictions with those of ING International
Bond Fund;
(7) the investment resources of ING Pilgrim Investments and the
distribution capabilities of ING Pilgrim Securities, Inc., distributor
of Pilgrim Strategic Income Fund;
(8) the quality and caliber of services that have been enjoyed by
shareholders of Pilgrim Strategic Income Fund;
(9) alternatives to combining the Funds; and
(10) the tax-free nature of the Reorganization to ING International Bond
Fund and its shareholders.
16
<PAGE>
The Board of Trustees also considered the future potential benefits to ING
Pilgrim Investments in that its costs to limit the expenses of Pilgrim Strategic
Income Fund are likely to be reduced if the Reorganization is approved.
THE TRUSTEES OF ING FUNDS TRUST, ON BEHALF OF THE ING INTERNATIONAL BOND FUND,
RECOMMEND THAT SHAREHOLDERS APPROVE THE REORGANIZATION WITH PILGRIM STRATEGIC
INCOME 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. Accordingly, pursuant to this
treatment, neither ING International Bond Fund nor its shareholders nor Pilgrim
Strategic Income 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 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 ING Funds Trust.
Immediately prior to the Reorganization, ING International Bond Fund will
pay a dividend or dividends which, together with all previous dividends, will
have the effect of distributing to its shareholders all of ING International
Bond Fund's investment company taxable income for taxable years ending on or
prior to the Reorganization (computed without regard to any deduction for
dividends paid) and all of its net capital gain, if any, realized in taxable
years ending on or prior to the Reorganization (after reduction for any
available capital loss carryforward). Such dividends will be included in the
taxable income of ING International Bond Fund's shareholders.
As of October 31, 1999, ING International Bond Fund had accumulated capital
loss carryforwards in the amount of approximately $323,411. As of June 30, 2000,
Pilgrim Strategic Income Fund had accumulated capital loss carryforwards of
approximately $812,559. After the Reorganization, the losses of Pilgrim
Strategic Income Fund will be available to Pilgrim Strategic Income Fund to
offset its capital gains, although the amount of these losses which may offset
Pilgrim Strategic Income's future capital gains in any given year may be
limited. As a result of this limitation, it is possible that Pilgrim Strategic
Income Fund may not be able to use its losses as rapidly as it might have had
the Reorganization not occurred, and part of these losses may not be useable at
all. The ability of Pilgrim Strategic Income 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 of Pilgrim Strategic Income Fund's capital loss
carryforwards and those of the ING International Bond Fund currently are
available only to pre-reorganization shareholders of those Funds. After the
Reorganization, however, these benefits will inure to the benefit of all
post-Reorganization shareholders of Pilgrim Strategic Income Fund.
EXPENSES OF THE REORGANIZATION. ING Pilgrim Investments, investment adviser
to Pilgrim Strategic Income Fund, will bear half the cost of the Reorganization.
The Funds will bear the other half of the expenses relating to the proposed
Reorganization, including, but not limited to, the costs of solicitation of
voting instructions and any necessary filings with the Securities and Exchange
Commission. Of the Reorganization expenses allocated to the Funds, each Fund
will bear a ratable portion based on its relative net asset value immediately
before Closing.
17
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUNDS
FORM OF ORGANIZATION. Pilgrim Strategic Income Fund is a series of Pilgrim
Mutual Funds, which is a Delaware business trust. ING International Bond Fund is
a series of ING Funds Trust, which is also a Delaware business trust. Pilgrim
Mutual Funds and ING Funds Trust are each governed by a Board of Trustees.
Pilgrim Mutual Funds has eleven Trustees and ING Funds Trust has four Trustees.
The members of each Board are different.
DISTRIBUTOR. ING Pilgrim Securities, Inc. (the "Distributor"), whose
address is 7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258, is the
principal distributor for both Funds.
Pilgrim Strategic Income Fund also offers Class Q shares, which have
different other expenses that may affect its performance. You can obtain more
information about this other share class by calling 1-800-992-0180.
DIVIDENDS AND OTHER DISTRIBUTIONS. Each Fund pays dividends from net
investment income and net capital gains, if any, on a monthly basis. Dividends
and distributions of each of the Funds are automatically reinvested in
additional shares of the respective Class of the particular Fund, unless the
shareholder elects to receive distributions in cash.
If the Reorganization Agreement is approved by ING International Bond
Fund's shareholders, then as soon as practicable before the Closing, ING
International Bond Fund will pay its shareholders a cash distribution of
substantially all undistributed net investment income and undistributed realized
net capital gains.
CAPITALIZATION. The following table shows on an unaudited basis the
capitalization of each of the Funds as of June 30, 2000 and on a PRO FORMA basis
as of June 30, 2000 giving effect to the Reorganization:
NET ASSET VALUE SHARES
NET ASSETS PER SHARE OUTSTANDING
---------- --------- -----------
ING INTERNATIONAL BOND FUND
Class A $22,260,938 $ 8.25 2,698,562
Class B $ 468,676 $ 8.24 56,867
Class C $ 39,628 $ 8.25 4,801
Class I $ 90 $ 8.23 11
Class X* $ 591,418 $ 8.25 71,708
PILGRIM STRATEGIC INCOME FUND
Class A $ 2,726,254 $12.07 225,777
Class B $ 4,460,163 $11.80 377,987
Class C $ 3,966,076 $12.30 322,466
Class Q $ 227,691 $11.45 19,891
PRO FORMA - PILGRIM STRATEGIC INCOME FUND INCLUDING ING INTERNATIONAL BOND FUND
Class A $24,987,192 $12.07 2,070,097
Class B $ 5,520,257 $11.80 467,825
Class C $ 4,005,704 $12.30 325,688
Class Q $ 227,781 $11.45 19,899
* Class X shares merged into Class B shares effective as of the close of
business on November 17, 2000.
18
<PAGE>
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 December __, 2000.
Shareholders of ING International Bond Fund whose shares are held by nominees,
such as brokers, can vote their proxies by contacting their respective nominee.
In addition to the solicitation of proxies by mail, employees of ING Funds Trust
and its affiliates, without additional compensation, may solicit proxies in
person or by telephone, telegraph, facsimile, or oral communication.
A shareholder may revoke the accompanying proxy at any time prior to its
use by filing with ING International Bond Fund a written revocation or duly
executed proxy bearing a later date. In addition, any shareholder who attends
the Special Meeting in person may vote by ballot at the Meeting, thereby
canceling any proxy previously given. The persons named in the accompanying
proxy card will vote as directed by the proxy, but in the absence of voting
directions in any proxy card that is signed and returned, they intend to vote
"FOR" the Reorganization proposal and may vote in their discretion with respect
to other matters not now known to the Board of Trustees of ING Funds Trust that
may be presented at the Meeting.
VOTING RIGHTS
Shareholders of ING International Bond 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 ING International Bond Fund at the close of business on
December 26, 2000 (the "Record Date") will be entitled to be present and give
voting instructions for ING International Bond Fund at the Meeting with respect
to their shares owned as of that Record Date. As of the Record Date, ______
shares of ING International Bond Fund were outstanding and entitled to vote.
Approval of the Reorganization requires the vote of a majority of the
outstanding Shares present in person or by proxy of ING International Bond Fund.
The holders of one-third of the outstanding shares present in person or
represented 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 Special Meeting for purposes of determining a quorum. However, abstentions
and broker non-votes will not be deemed represented at the Special Meeting for
purposes of calculating the vote on any matter. As a result, an abstention or
broker non-vote will have the same effect as a vote against the Reorganization.
ING International Bond Fund expects that, before the Special Meeting,
broker-dealer firms holding shares of the Fund in "street name" for their
customers will request voting instructions from their customers and beneficial
owners. If these instructions are not received by the date specified in the
broker-dealer firms' proxy solicitation materials, ING International Bond Fund
understands that the broker-dealers that are members of the New York Stock
Exchange may vote on the items to be considered at the Special Meeting on behalf
of their customers and beneficial owners under the rules of the New York Stock
Exchange.
19
<PAGE>
As of December 1, 2000, ING America Insurance Holdings, Inc. ("ING") owns
__% of the outstanding voting shares of ING International Bond Fund, and
therefore controls the Fund. ING intends to vote its shares in favor of the
Reorganization, in which case the Reorganization will be approved.
To the knowledge of ING Funds Trust, as of December 1, 2000, no current
Trustee owns 1% or more of the outstanding shares of ING International Bond
Fund, and the officers and Trustees own, as a group, less than 1% of the shares
of ING International Bond Fund.
Appendix E hereto lists the persons that, as of December 1, 2000, owned
beneficially or of record 5% or more of the outstanding shares of any Class of
ING International Bond Fund or Pilgrim Strategic Income Fund.
OTHER MATTERS TO COME BEFORE THE SPECIAL MEETING
ING Funds Trust does not know of any matters to be presented at the Special
Meeting other than those described in this Proxy Statement/Prospectus. If other
business should properly come before the Special Meeting, the proxyholders will
vote thereon in accordance with their best judgment.
SHAREHOLDER PROPOSALS
ING Funds Trust is not required to hold regular annual meetings and, in
order to minimize its costs, does not intend to hold meetings of shareholders
unless so required by applicable law, regulation, regulatory policy or if
otherwise deemed advisable by ING International Bond Fund's 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
ING Funds Trust will furnish, without charge, a copy of the most recent
Annual Report regarding ING International Bond Fund and the most recent
Semi-Annual Report succeeding the Annual Report, if any, on request. Requests
for such reports should be directed to IMFC at 7337 E. Doubletree Ranch Road,
Scottsdale, Arizona 85258 or at 1-800-992-0180.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED,
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
James M. Hennessy,
Secretary
_______ __, 2000
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
20
<PAGE>
APPENDIX A
Set forth below is an excerpt from Pilgrim Strategic Income Fund's Annual
Report, dated June 30, 2000, regarding the Fund's performance.
PILGRIM STRATEGIC INCOME FUND
PORTFOLIO MANAGER'S REPORT
MANAGEMENT TEAM: Robert Kinsey, Vice President & Senior Portfolio Manager; Kevin
Mathews, Vice President & Senior Portfolio Manager; Charles Ullerich, Vice
President & Portfolio Manager.
GOALS: Pilgrim Strategic Income Fund (the "Fund" or "Strategic Income") seeks
maximum total return by investing primarily in U.S. and foreign governments and
their agencies and instrumentalities, that are rated investment grade by a
nationally recognized statistical rating agency, or of comparable quality if
unrated. Up to 40% of the Fund's assets may be invested in high yield securities
rated below investment grade.
BOND MARKET OVERVIEW: The high quality bond market experienced extraordinary
bouts of illiquidity up until the latter part of the second quarter 2000. While
weakness in the equity market boded well for U.S. Treasuries, a number of
corporate bonds were pummeled by earnings warnings and downgrades. Event risk
returned to the corporate market with a vengeance, raising the ugly specter of
credit-damaging shareholder enhancement programs. Credit-harming mergers and
acquisitions also made headlines. However, the successful completion of several
record-breaking new issues marked the turnaround in spread product by late May.
Agencies faced some very rough sledding early in 2000 as a congressional
committee and political pundits questioned the unique relationship between the
Treasury department, Fannie Mae (FNMA) and Freddie Mac (FHLMC). Despite numerous
Federal Reserve Bank tightenings, long-term Treasuries have been well bid in the
face of government buybacks and signs that the domestic economy is slowing.
The first half of 2000 was better than the second half of 1999, but not by much.
The negative returns of 1999 were succeeded by flat returns in 2000. High yield
bond prices continued to decline in the first half of 2000, but when combined
with coupon income, total returns on the sector came close to zero.
Federal Open Market Committee (FOMC) policy continued the tightening bias of
1999 with further interest rate increases in the first half of 2000. After
raising the Federal Reserve Bank Funds target rate from 5% to 5.5% in the second
half of 1999, the FOMC raised rates from 5.5% to 6.5% in the first half of 2000.
The FOMC continues to be concerned that the domestic economy is growing too
quickly and that the result might be increased inflation. Much of the price
behavior in the high yield market can be directly attributed to participants
fear that the Federal Reserve Bank will over-tighten, pushing the economy into a
recession.
Through the year ended June 30, 2000, the ten-year Treasury yield was basically
unchanged yielding just below 6% at the beginning of the period and just above
6% at the end of the period. High yield bonds, reflecting the increased risk
premium demanded by the market, rose in yield, falling in price over the same
time period. Spreads remained virtually unchanged from the beginning to the end
of the second half of 1999, but widened by 100 to 125 basis points on most of
the major high yield indices in the first half of 2000. This activity reflected
the fear of recession as well as rising default rates, declining recovery rates,
and weak technical conditions resulting from mutual fund net redemptions. Mutual
fund outflows totaled in excess of $6 billion in the first half of 2000,
although trends have been more positive in the latter half with sales outpacing
redemptions.
In the first half of 2000, trends from the second half of 1999 continued as
higher rated issues outperformed lower rated issues. In order of performance for
2000, Double-B issues ranked first followed by Single-B and at the bottom
Triple-C and lower rated issues. These results are to be expected with the
increased level of investor sensitivity to economic conditions. Concerns about
the market did not seem to significantly slow new issuance. First half of 2000
issuances totaled $27 billion, down only marginally from the $35 billion total
from the second half of 1999. This a positive sign as there is still buyer
demand for quality issues, even in a slow and cautious market.
A-1
<PAGE>
PERFORMANCE: For the one year ended June 30, 2000 the Fund's Class A shares,
excluding sales charges, provided a total return of 3.42% compared to the Lehman
Brothers Aggregate Index which returned 4.57% for the same period.
PORTFOLIO SPECIFICS: A significant commitment to U.S. Treasuries on the heels of
the government's buyback announcement boosted returns. Following the
under-performance of corporate bonds in the early part of the year, we added
Lucent, Wal-Mart, and insured Banco Santander paper along with several agency
debentures in May. We maintained our presence in puttable corporates.
The Fund outperformed most of its peers over the past year due to a large
concentration in the Communications sector. The best performing credits were
those on the leading edge of telecommunication technology including providers of
digital subscriber lines, wireless voice and internet/data connectivity, and
firms that provide access technology for internet data sites. Equally important
has been the avoidance of sectors that have significantly underperformed the
market including Healthcare, Food & Drug, and Retail credits.
Credit quality has played a role in performance the last twelve months. Double-B
issues have significantly outperformed the market while Triple-C's have
underperformed. The Fund's average credit quality weighting of Single-A has
slightly helped the portfolio, providing a return close to the market averages.
Overall, the Fund's management feels the credit quality of the portfolio is good
and positioned for outperformance in the second half of 2000.
MARKET OUTLOOK: Agency debentures offer excellent relative value especially now
that Congress is unlikely to move against the government sponsored enterprises
anytime soon. Despite the strong rally relative to Treasuries and swaps, we feel
that selective corporate bonds are cheap. We continue to avoid event risk
candidates and long-dated corporate paper, and we focus on larger more liquid
issues. Recent economic data point to a recent Federal Reserve Bank-engineered
slowdown, and the market consensus is for only one more tightening. Consequently
the surprise, non-consensus, outcome seems to poise the greatest risk to
interest rates. Nevertheless, we are slightly long in duration, but would trim
that to neutral if rates rally significantly.
Our outlook is cautious as we continue to witness an FOMC that has a bias to
tighten monetary policy. The danger of recession is real as the Federal Reserve
Bank typically creates a soft-landing, or a slowing of economic growth and
inflation without a recession, about 50% of the time once they begin tightening.
When they create a recession, the results can be problematic for high yield
bonds. We have also taken note of the increasingly tough stance taken by banks
and other lenders on not being willing to waive convenant violations. This
causes high yield credits to get into trouble faster as there is less
forbearance on the part of senior bank lenders. Finally, the high yield market
itself is less forgiving. Quality names will snap back with the market, marginal
credits will eventually recover if investors wait, but weak issuers are given no
benefit of the doubt. Weak issues can not hide behind general market trends.
Given this it becomes obvious it is a credit pickers market. Diligence in the
credit review and monitoring process has become key to maintaining returns above
the benchmark averages.
7/27/98 6/30/99 6/30/00
------- ------- -------
Pilgrim Strategic Income Fund Class A 10,000 9,739 10,073
With Sales Charge
Pilgrim Strategic Income Fund Class A
Without Sales Charge 10,000 10,223 10,574
Lehman Brothers Aggregate Index (4) 10,000 10,293 10,763
A-2
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED JUNE 30, 2000
SINCE INCEPTION
1 YEAR 7/27/98
------ -------
Including Sales Charge:
Class A(1) -1.49% 0.38%
Class B(2) -2.00% 0.64%
Class C(3) 2.02% 2.54%
Excluding Sales Charge:
Class A 3.42% 2.93%
Class B 3.00% 2.53%
Class C 3.02% 2.54%
Lehman Brothers Aggregate Index (4) 4.57% 3.91%
Based on a $10,000 initial investment, the graph and table above illustrate the
total return of Pilgrim Strategic Income Fund against the Lehman Brothers
Aggregate Index. The Index has an inherent performance advantage over the Fund
since it has no cash in its portfolio, imposes no sales charges and incurs no
operating expenses. An investor cannot invest directly in a index. The Fund's
performance is shown both with and without the imposition of sales charges.
Total returns reflect the fact that the Investment Adviser has contractually
agreed to waive or defer its management fee and to pay other operating expenses
otherwise payable by the Fund, subject to possible later reimbursement during a
three-year period. Total returns would have been lower had there been no
deferral to the Fund.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
This letter contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The portfolio manager's
views are subject to change at any time based on market and other conditions.
Portfolio holdings are subject to change daily.
(1) Reflects deduction of the maximum Class A sales charge of 4.75%.
(2) Reflects deduction of the Class B deferred sales charge of 5% and 4%,
respectively, for the 1 year and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1.00%.
(4) Since inception performance for index is shown from 08/01/98
PRINCIPAL RISK FACTOR(S): High yield bonds have exposure to financial, market
and interest rate risks. High yields reflect the higher credit risks associated
with certain lower rated securities in the Fund's portfolio, and in some cases,
the lower market prices for those instruments. The Fund's investments in
mortgage-related securities may entail prepayment risk. The Fund may invest up
to 30% of its total assets in securities payable in foreign currencies.
International investing does pose special risks, including currency fluctuation
and political risks not found in domestic investments.
A-3
<PAGE>
APPENDIX B
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____ day of _____________, 2000, by and between Pilgrim Mutual Funds, a
Delaware business trust (the "Pilgrim Trust") with its principal place of
business at 7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258, on behalf
of its series, Pilgrim Strategic Income Fund (the "Acquiring Fund"), and ING
Funds Trust, a Delaware business trust (the "ING Trust") with its principal
place of business at 1475 Dunwoody Drive, West Chester, Pennsylvania 19380, on
behalf of its series, ING International Bond Fund (the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for Class A, Class B and
Class C voting shares of beneficial interest of the Acquiring Fund (the
"Acquiring Fund Shares"), the assumption by the Acquiring Fund of all
liabilities of the Acquired Fund, and the distribution of the Acquiring Fund
Shares to the shareholders of the Acquired Fund in complete liquidation of the
Acquired Fund as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are both series of
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 Pilgrim Trust have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the Acquiring Fund and its shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not be
diluted as a result of this transaction; and
WHEREAS, the Trustees of the ING Trust have determined that the exchange of
all of the assets of the Acquired Fund for Acquiring Fund Shares and the
assumption of all liabilities of the Acquired Fund by the Acquiring Fund is in
the best interests of the Acquired Fund and its shareholders and that the
interests of the existing shareholders of the Acquired Fund would not be diluted
as a result of this transaction;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1 Subject to the requisite approval of the Acquired Fund shareholders and
the other terms and conditions herein set forth and on the basis of the
representations and warranties contained herein, the Acquired Fund agrees to
transfer all of the Acquired Fund's assets, as set forth in paragraph 1.2, to
the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor: (i) to
deliver to the Acquired Fund the number of full and fractional Class A, 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, as set forth in paragraph 1.3. Such transactions shall
take place at the closing provided for in paragraph 3.1 (the "Closing").
B-1
<PAGE>
1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all assets and property, including, without limitation, all
cash, securities, commodities and futures interests and dividends or interests
receivable, that are owned by the Acquired Fund, and any deferred or prepaid
expenses shown as an asset on the books of the Acquired Fund, on the closing
date provided for in paragraph 3.1 (the "Closing Date") (collectively,
"Assets").
1.3 The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund shall
also assume all of the liabilities of the Acquired Fund, whether accrued or
contingent, known or unknown, existing at the Valuation Date (collectively,
"Liabilities"). On or as soon as practicable prior to the Closing Date, the
Acquired Fund will declare and pay to its shareholders of record one or more
dividends and/or other distributions so that it will have distributed
substantially all (and in no event less than 98%) of its investment company
taxable income (computed without regard to any deduction for dividends paid) and
realized net capital gain, if any, for the current taxable year through the
Closing Date.
1.4 Immediately after the transfer of assets provided for in paragraph 1.1,
the Acquired Fund will distribute to the Acquired Fund's shareholders of record
with respect to 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.
1.6 Any reporting responsibility of the Acquired Fund including, but not
limited to, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
2. VALUATION
2.1 The value of the Assets shall be the value computed as of immediately
after the close of business of the New York Stock Exchange and after the
declaration of any dividends on the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures in the
then-current prospectus and statement of additional information with respect to
the Acquiring Fund, and valuation procedures established by the Acquiring Fund's
Board of Trustees.
2.2 The net asset value of a Class A, Class B or Class C Acquiring Fund
Share shall be the net asset value per share computed with respect to that class
as of the Valuation Date, using the valuation procedures set forth in the
Acquiring Fund's then-current prospectus and statement of additional information
with respect to the Acquiring Fund, and valuation procedures established by the
Acquiring Fund's Board of Trustees.
B-2
<PAGE>
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 and Class C
shares of the Acquired Fund, as the case may be, determined using the same
valuation procedures referred to in paragraph 2.1, by the net asset value of an
Acquiring Fund Share, determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made by the Acquired Fund's
designated record keeping agent and shall be subject to confirmation by
Acquiring Fund's record keeping agent and by each Fund's respective independent
accountants.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be _____ ___, 2001, or such other date as the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of immediately after the close of business on the
Closing Date unless otherwise agreed to by the parties. The close of business on
the Closing Date shall be as of 4:00 p.m., Eastern Time. The Closing shall be
held at the offices of the Acquiring Fund or at such other time and/or place as
the parties may agree.
3.2 The Acquired Fund shall direct 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 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 for examination by the Acquired Fund
Custodian to the custodian for the Acquiring Fund no later than five business
days preceding the Closing Date, and shall be transferred and delivered by the
Acquired Fund as of the Closing Date for the account of the Acquiring Fund duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof. The Custodian shall deliver as of the Closing Date by book
entry, in accordance with the customary practices of each securities depository,
as defined in Rule 17f-4 under the Investment Company Act of 1940, as amended
(the "1940 Act") in which the Acquired Fund's Assets are deposited and the
Custodian, the Acquired Fund's Assets deposited with such depositories. The cash
to be transferred by the Acquired Fund shall be delivered by wire transfer of
federal funds on the Closing Date.
3.3 The Acquired Fund shall direct DST Systems, Inc. (the "Transfer
Agent"), on behalf of the Acquired Fund, to deliver at the Closing a certificate
of an authorized officer stating that its records contain the names and
addresses of the Acquired Fund Shareholders and the number and percentage
ownership of outstanding Class A, 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 Acquiring Fund, or provide evidence
satisfactory to the Acquired Fund that such Acquiring Fund Shares have been
credited to the Acquired Fund's account on the books of the Acquiring Fund. At
the Closing each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request.
3.4 In the event that on the Valuation Date (a) the New York Stock Exchange
or another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund 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 Acquired Fund or the Board of Trustees of the Acquiring Fund, accurate
appraisal of the value of the net assets of the Acquiring Fund or the Acquired
Fund, respectively, 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.
B-3
<PAGE>
4. REPRESENTATIONS AND WARRANTIES
4.1 Except as has been disclosed to the Acquiring Fund in a written
instrument executed by an officer of the ING Trust, the ING Trust, on behalf of
the Acquired Fund, represents and warrants to the Pilgrim Trust as follows:
(a) The Acquired Fund is duly organized as a series of the ING Trust, which
is a business trust duly organized, validly existing and in good standing under
the laws of the State of Delaware, with power under the ING 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 ING Trust is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act, and the registration of
shares of the Acquired Fund under the Securities Act of 1933, as amended ("1933
Act"), is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act")
and the 1940 Act and such as may be required by state securities laws;
(d) The current prospectus and statement of additional information of the
Acquired Fund and each prospectus and statement of additional information of the
Acquired Fund used during the three years previous to the date of this Agreement
conforms or conformed at the time of its use in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and does not or did not at the time of
its use include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading;
(e) On the Closing Date, the Acquired Fund will have good and marketable
title to the Assets and full right, power, and authority to sell, assign,
transfer and deliver such Assets hereunder free of any liens or other
encumbrances, and upon delivery and payment for such Assets, the Acquiring Fund
will acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under the
1933 Act, other than as disclosed to the Acquiring Fund;
(f) The Acquired Fund is not engaged currently, and the execution, delivery
and performance of this Agreement will not result, in (i) a material violation
of the ING Trust's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the ING
Trust, on behalf of 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 ING Trust, on behalf of the Acquired Fund, is a party or by which it is
bound;
(g) All material contracts or other commitments of the Acquired Fund (other
than this Agreement and certain investment contracts, including options,
futures, and forward contracts) will terminate without liability to the Acquired
Fund on or prior to the Closing Date;
(h) Except as otherwise disclosed in writing to and accepted by the Pilgrim
Trust, on behalf of the Acquiring Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or, to its knowledge, threatened against the ING Trust, on
behalf of the Acquired Fund, or any of the Acquired Fund's properties or assets
that, if adversely determined, would materially and adversely affect the
Acquired Fund's financial condition or the conduct of the Acquired Fund's
business. ING Trust, on behalf of the Acquired Fund, knows of no facts which
might form the basis for the institution of such proceedings and is not a party
to or subject to the provisions of any order, decree or judgment of any court or
B-4
<PAGE>
governmental body which materially and adversely affects the Acquired Fund's
business or the Acquired Fund's 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 Ernst & Young 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, dividend
reporting forms, and other tax-related reports of the Acquired Fund required by
law to have been filed by such date (including any extensions) shall have been
filed and are or will be correct in all material respects, and all Federal and
other taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge, no such return is
currently under audit and no assessment has been asserted with respect to such
returns;
(l) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met (or will meet) the
requirements of Subchapter M of the Code for qualification as a regulated
investment company, has been (or will be) eligible to and has computed (or will
compute) its federal income tax under Section 852 of the Code, and will have
distributed all of its investment company taxable income and net capital gain
(as defined in the Code) that has accrued through the Closing Date, and before
the Closing Date will have declared dividends sufficient to distribute all of
its investment company taxable income and net capital gain for the period ending
on the Closing Date;
(m) All issued and outstanding shares of the Acquired Fund are, and on the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable by the ING Trust and have been offered and sold in every state
and the District of Columbia in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities laws.
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 ING Trust, on behalf of the Acquired Fund,
and, subject to the approval of the shareholders of the Acquired Fund, this
Agreement will constitute a valid and binding obligation of the Acquired Fund,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
B-5
<PAGE>
(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 Except as has been disclosed to the Acquired Fund in a written
instrument executed by an officer of the Pilgrim Trust, the Pilgrim Trust, on
behalf of the Acquiring Fund, represents and warrants to the ING Trust as
follows:
(a) The Acquiring Fund is duly organized as a series of the Pilgrim Trust,
which is a business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware, with power under the Pilgrim 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 Pilgrim Trust is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act and the registration of
the shares of the Acquired Fund under the 1933 Act, is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required by state
securities laws;
(d) The current prospectus and statement of additional information of the
Acquiring Fund and each prospectus and statement of additional information of
the Acquiring Fund used during the three years previous to the date of this
Agreement conforms or conformed at the time of its use in all material respects
to the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the Commission thereunder and does not or did not at the time
of its use include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading;
(e) On the Closing Date, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets, free of any liens of other encumbrances,
except those liens or encumbrances as to which the Acquired Fund has received
notice and necessary documentation at or prior to the Closing;
(f) The Acquiring Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in (i) a material
violation of the Pilgrim Trust's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
the Pilgrim Trust, on behalf of the Acquiring Fund, is a party or by which it is
bound, or (ii) the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease, judgment
or decree to which the ING Trust, on behalf of the Acquiring Fund, is a party or
by which it is bound;
B-6
<PAGE>
(g) Except as otherwise disclosed in writing to and accepted by the ING
Trust, on behalf of the Acquired Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or, to its knowledge, threatened against the Pilgrim Trust, on
behalf of the Acquiring Fund, or any of the Acquiring Fund's properties or
assets that, if adversely determined, would materially and adversely affect the
Acquiring Fund's financial condition or the conduct of the Acquiring Fund's
business. Pilgrim Trust, on behalf of the Acquiring Fund, knows of no facts
which might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects the Acquiring
Fund's business or the Acquiring Fund's ability to consummate the transactions
herein contemplated;
(h) The Statement of Assets and Liabilities, Statements of Operations and
Changes in Net Assets and Portfolio of Investments of the Acquiring Fund at June
30, 2000 have been audited by KPMG LLP, independent auditors, and are in
accordance with GAAP consistently applied, and such statements (copies of which
have been furnished to the Acquired Fund) present fairly, in all material
respects, the financial condition of the Acquiring Fund as of such date in
accordance with GAAP, and there are no known contingent liabilities of the
Acquiring Fund required to be reflected on a balance sheet (including the notes
thereto) in accordance with GAAP as of such date not disclosed therein;
(i) Since June 30, 2000, there has not been any material adverse change in
the Acquiring Fund's financial condition, assets, liabilities or business, other
than changes occurring in the ordinary course of business, or any incurrence by
the Acquiring Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed to and accepted by
the Acquired Fund. For purposes of this subparagraph (i), a decline in net asset
value per share of the Acquiring Fund due to declines in market values of
securities in the Acquiring Fund's portfolio, the discharge of Acquiring Fund
liabilities, or the redemption of Acquiring Fund Shares by shareholders of the
Acquiring Fund, shall not constitute a material adverse change;
(j) On the Closing Date, all Federal and other tax returns, dividend
reporting forms, and other tax-related reports of the Acquiring Fund required by
law to have been filed by such date (including any extensions) shall have been
filed and are or will be correct in all material respects, and all Federal and
other taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof, and to the best of the Acquiring Fund's knowledge no such return is
currently under audit and no assessment has been asserted with respect to such
returns;
(k) For each taxable year of its operation (including the taxable year that
includes the Closing Date), the Acquiring Fund has met (or will meet) the
requirements of Subchapter M of the Code for qualification as a regulated
investment company, has been eligible to and has computed (or will compute) its
federal income tax under Section 852 of the Code, and has distributed all of its
investment company taxable income and net capital gain (as defined in the Code)
for periods ending prior to the Closing Date;
(l) All issued and outstanding Acquiring Fund Shares are, and on the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable by the Trust and have been offered and sold in every state and
the District of Columbia in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws. The
Acquiring Fund does not have outstanding any options, warrants or other rights
to subscribe for or purchase any Acquiring Fund Shares, nor is there outstanding
any security convertible into any Acquiring Fund Shares;
(m) The execution, delivery and performance of this Agreement will have
been fully authorized prior to the Closing Date by all necessary action, if any,
on the part of the Trustees of the Pilgrim Trust, on behalf of the Acquiring
Fund, and this Agreement will constitute a valid and binding obligation of the
Pilgrim Trust, on behalf 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;
B-7
<PAGE>
(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 Trust;
(o) The information to be furnished by the Pilgrim Trust for use in the
registration statements, proxy materials and other documents that may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations applicable
thereto; and
(p) That insofar as it relates to the Acquiring Fund, the Registration
Statement relating to the Acquiring Fund Shares issuable hereunder, and the
proxy materials of the Acquired Fund to be included in the Registration
Statement, and any amendment or supplement to the foregoing, will, from the
effective date of the Registration Statement through the date of the meeting of
shareholders of the Acquired Fund contemplated therein (i) not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading, provided,
however, that the representations and warranties in this subparagraph (p) shall
not apply to statements in or omissions from the Registration Statement made in
reliance upon and in conformity with information that was furnished by the
Acquired Fund for use therein, and (ii) comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder.
(q) Either the Acquiring Fund or ING Pilgrim Investments, Inc. shall
purchase and maintain a Directors and Officers errors and omissions insurance
policy ("D&O/E&O Policy") for the benefit of Joseph Hankin and Jack Rehm
containing substantially the same form and amount of coverage as each had under
a D&O/E&O policy of the Acquired Fund, such D&O/E&O Policy to be effective as of
the Closing Date and continuing until the sixth (6th) anniversary of the Closing
Date.
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 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 Fund (the
B-8
<PAGE>
"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 ING Trust, on behalf of the Acquired Fund, covenants that ING Trust
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 Pilgrim Trust, on behalf of the Acquiring Fund, may reasonably deem
necessary or desirable in order to vest in and confirm (a) the ING Trust's, on
behalf of the Acquired Fund, title to and possession of the Acquiring Fund
Shares to be delivered hereunder, and (b) the Pilgrim Trust's, on behalf of the
Acquiring Fund, title to and possession of all the assets, and 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 ING Trust, on behalf of the Acquired Fund, to
consummate the transactions provided for herein shall be subject, at the ING
Trust's election, to the performance by the Pilgrim Trust, on behalf of the
Acquiring Fund, of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations and warranties of the Pilgrim Trust, on behalf of
the Acquiring Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date;
6.2 The Pilgrim Trust shall have delivered to the ING Trust 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 ING Trust and
dated as of the Closing Date, to the effect that the representations and
warranties of the Pilgrim Trust, on behalf of the Acquiring Fund, made in this
Agreement are true and correct at and as of the Closing Date, except as they may
be affected by the transactions contemplated by this Agreement and as to such
other matters as the ING Trust shall reasonably request;
6.3 The Pilgrim Trust, on behalf of the Acquiring Fund, shall have
performed all of the covenants and complied with all of the provisions required
by this Agreement to be performed or complied with by the Pilgrim Trust, on
behalf of the Acquiring Fund, on or before the Closing Date; and
6.4 The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each Class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1.
B-9
<PAGE>
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Pilgrim Trust, on behalf of the Acquiring Fund, to
complete the transactions provided for herein shall be subject, at the Pilgrim
Trust's election, to the performance by the ING Trust, on behalf of the Acquired
Fund, of all of the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the ING Trust, on behalf of the
Acquired Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
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 ING Trust 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 ING Trust;
7.3 The ING Trust 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
Pilgrim Trust and dated as of the Closing Date, to the effect that the
representations and warranties of the ING Trust, on behalf of the Acquired Fund,
made in this Agreement are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Pilgrim Trust shall reasonably
request;
7.4 The ING Trust, on behalf of the Acquired Fund, shall have performed all
of the covenants and complied with all of the provisions required by this
Agreement to be performed or complied with by the ING Trust, on behalf of the
Acquired Fund, on or before the Closing Date;
7.5 The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each Class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1; and
7.6 The Acquired Fund shall have declared and paid a distribution or
distributions prior to the Closing that, together with all previous
distributions, shall have the effect of distributing to its shareholders (i) all
of its investment company taxable income and all of its net realized capital
gains, if any, for the period from the close of its last fiscal year to 4:00
p.m. Eastern time on the Closing; and (ii) any undistributed investment company
taxable income and net realized capital gains from any period to the extent not
otherwise already distributed.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below have not been satisfied on or
before the Closing Date with respect to the ING Trust, on behalf of the Acquired
Fund, or the Pilgrim Trust, on behalf of the Acquiring Fund, the other party to
this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the ING Trust's Declaration
of Trust, By-Laws, applicable Delaware law and the 1940 Act, and certified
copies of the resolutions evidencing such approval shall have been delivered to
the Acquiring Fund. Notwithstanding anything herein to the contrary, neither the
Pilgrim Trust nor the ING Trust 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;
B-10
<PAGE>
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 Pilgrim Trust or the ING Trust 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 addressed to the
ING Trust and the Pilgrim Trust substantially to the effect that, based upon
certain facts, assumptions, and representations, the transaction contemplated by
this Agreement shall constitute a tax-free reorganization for Federal income tax
purposes. The delivery of such opinion is conditioned upon receipt by Dechert of
representations it shall request of the Pilgrim Trust and the ING Trust.
Notwithstanding anything herein to the contrary, neither the Pilgrim Trust nor
the ING Trust may waive the condition set forth in this paragraph 8.5.
9. INDEMNIFICATION
9.1 The Pilgrim Trust, out of the Acquiring Fund's assets, agrees to
indemnify and hold harmless the ING Trust and each of its Trustees and officers
from and against any and all losses, claims, damages, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally the ING Trust
or any of its Trustees or officers may become subject, insofar as any such loss,
claim, damage, liability or expense (or actions with respect thereto) arises out
or or is based on any breach by the Pilgrim Trust of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
9.2 The ING Trust, out of the Acquired Fund's assets, agrees to indemnify
and hold harmless the Pilgrim Trust and each of its Trustees and officers from
and against any and all losses, claims, damages, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally the Pilgrim
Trust or any of its Trustees or officers may become subject, insofar as any such
loss, claim, damage, liability or expense (or actions with respect thereto)
arises out or or is based on any breach by the ING Trust of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
10. BROKERAGE FEES AND EXPENSES
10.1 The Pilgrim Trust, on behalf of the Acquiring Fund, and the ING Trust,
on behalf of the Acquired Fund, represent and warrant to each other that there
are no brokers or finders entitled to receive any payments in connection with
the transactions provided for herein.
10.2 The expenses relating to the proposed Reorganization will be shared so
that (1) half of such costs are borne by the investment adviser to the Acquiring
Fund, and (2) half are borne by the Acquired and Acquiring Funds and will be
paid by the Acquired Fund and Acquiring Fund pro rata based upon the relative
net assets of the Acquired Fund and Acquiring Fund as of the close of business
on the record date for determining the shareholders of the Acquired Fund
entitled to vote on the Reorganization. The costs of the Reorganization shall
include, but not be limited to, costs associated with obtaining any necessary
order of exemption from the 1940 Act, preparation of the Registration Statement,
printing and distributing the Acquiring Fund's prospectus and the Acquired
Fund's proxy materials, legal fees, accounting fees, securities registration
fees, and expenses of holding shareholders' meetings. Notwithstanding any of the
foregoing, expenses will in any event be paid by the party directly incurring
such expenses if and to the extent that the payment by another person of such
expenses would result in the disqualification of such party as a "regulated
investment company" within the meaning of Section 851 of the Code.
B-11
<PAGE>
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1 The Pilgrim Trust and the ING Trust agree that neither party has made
any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
11.2 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 and the obligations of each of the
ING Trust and Pilgrim Trust in Sections 9.1 and 9.2 shall survive the Closing.
12. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned by either party by (i) mutual agreement of the parties, or (ii)
by either party if the Closing shall not have occurred on or before ___________
__, 200_, unless such date is extended by mutual agreement of the parties, or
(iii) by either party if the other party shall have materially breached its
obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective Trustees or officers,
except for any such material breach or intentional misrepresentation, as to each
of which all remedies at law or in equity of the party adversely affected shall
survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be deemed necessary or advisable by the authorized officers of the ING Trust
and the Pilgrim Trust; provided, however, that following the meeting of the
shareholders of the Acquired Fund called by the ING Trust 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.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by
facsimile, personal service or prepaid or certified mail addressed to the ING
Trust, 7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258, attn: Louis S.
Citron, in each case with a copy to Paul, Weiss, Rifkind, Wharton & Garrison,
1285 Avenue of the Americas, New York, New York 10169, attn: Steven R. Howard;
and to the Pilgrim Trust, 7337 E. Doubletree Ranch Road, Scottsdale, Arizona
85258, attn: James M. Hennessy, in each case with a copy to Dechert, 1775 Eye
Street, N.W., Washington, D.C. 20006, attn: Jeffrey S. Puretz.
15. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
15.1 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.
15.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
B-12
<PAGE>
15.3 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.
15.4 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.
15.5 It is expressly agreed that the obligations of the parties hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents, or employees of the Pilgrim Trust or ING Trust personally, but shall
bind only the trust property of the Acquiring Fund or Acquired Fund, as provided
in the Declaration of Trust of the Pilgrim Trust or ING Trust. The execution and
delivery by such officers shall not be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the trust property of such 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
PILGRIM STRATEGIC INCOME FUND series
------------------------------------
SECRETARY By:
------------------------------------
Its:
-----------------------------------
Attest: ING FUNDS TRUST on behalf of its
ING INTERNATIONAL BOND FUND series
------------------------------------
SECRETARY By:
------------------------------------
Its:
-----------------------------------
B-13
<PAGE>
APPENDIX C
ADDITIONAL INFORMATION REGARDING PILGRIM STRATEGIC INCOME FUND
(THE "FUND")
SHAREHOLDER GUIDE
PILGRIM PURCHASE OPTIONS(TM)
This Proxy Statement/Prospectus relates to three separate Classes of
Pilgrim Strategic Income Fund (the "Fund"): Class A, Class B and Class C, 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. The Fund also offers Class Q shares, which has different sales
charges and other expenses that may affect its performance. You can obtain more
information about this other share Class by calling (800) 992-0180. As described
below and elsewhere in this Proxy Statement/Prospectus, the contingent deferred
sales load structure and conversion characteristics of the Fund shares that will
be issued to you in the Reorganization will be the same as those that apply to
ING International Bond Fund shares held by you immediately prior to the
Reorganization, and the period that you held shares of ING International Bond
Fund will be included in the holding period of the Fund for purposes of
calculating contingent deferred sales charges and determining conversion rights.
Purchases of the shares of the Fund after the Reorganization will be subject to
the sales load structure and conversion rights discussed below.
The sales charges and fees for each Class of shares of the Fund are shown
and contrasted in the chart below.
CLASS A CLASS B CLASS C
------- ------- -------
Maximum Initial Sales Charge on Purchases 4.75%(1) None None
Contingent Deferred Sales Charge ("CDSC") None(2) 5.00%(3) 1.00%(4)
Annual Service and Distribution (12b-1) Fees(5) 0.35% 0.75% 0.75%
Maximum Purchase Unlimited $250,000 Unlimited
Automatic Conversion to Class A N/A 8 Years(6) N/A
----------
(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" in
this Appendix C.
(3) Imposed upon redemption within 6 years from purchase. Fee has scheduled
reductions after the first year. See "Class B Shares: Deferred Sales Charge
Alternative" in this Appendix C.
(4) Imposed upon redemption within 1 year from purchase.
(5) Annual asset-based distribution charge.
(6) Automatic conversion to Class A shares after 8 years, thus reducing future
annual expenses.
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.
CLASS A SHARES: INITIAL SALES CHARGE ALTERNATIVE. Class A shares of the
Fund are sold at the net asset value ("NAV") per share in effect plus a sales
charge as described in the following table. For waivers or reductions of the
Class A shares sales charges, see "Special Purchases without a Sales Charge" and
"Reduced Sales Charges" below.
C-1
<PAGE>
AS A % OF THE AS A %
YOUR INVESTMENT OFFERING PRICE OF NAV
--------------- -------------- ------
Less than $50,000 4.75% 4.99%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $1,000,000 2.00% 2.04%
There is no initial sales charge on purchases of $1,000,000 or more.
However, the shares will be subject to a CDSC if they are redeemed within one or
two years of purchase, depending on the amount of the purchase, as follows:
PERIOD DURING
YOUR INVESTMENT CDSC WHICH CDSC APPLIES
--------------- ---- ------------------
$1,000,000 - $2,499,999 1.00% 2 years
$2,500,000 - $4,999,999 0.50% 1 year
$5,000,000 and over 0.25% 1 year
Class A shares of the Fund issued in connection with the Reorganization
with respect to Class A shares of ING Intermediate Bond Fund that were subject
to a CDSC at the time of the Reorganization, will be subject to a CDSC of up to
1% for a period of twelve months from the date of purchase of the original
shares of ING Intermediate Bond Fund.
REDUCED SALES CHARGES. An investor may immediately qualify for a reduced
sales charge on a purchase of Class A shares of the Fund or other open-end funds
in the Pilgrim Funds or ING 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 of Intent amount multiplied by the maximum sales
charge imposed on purchases of the Fund and Class will be restricted within your
account to cover additional sales charges that may be due if your actual total
investment fails to qualify for the reduced sales charges. See the Statement of
Additional Information for the Fund for details on the Letter of Intent option
or contact the Shareholder Servicing Agent at (800) 992-0180 for more
information.
A sales charge may also be reduced by taking into account the current value
of your existing holdings in the Fund or any other open-end funds in the Pilgrim
Funds or ING 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 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 Fund which
imposes a CDSC.
C-2
<PAGE>
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 are
offered at their NAV per share without any initial sales charge. 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 0.75% 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. 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 based on the
lesser of the NAV of the Class B shares at the time of purchase or redemption.
There is no CDSC on Class B shares acquired through the reinvestment of
dividends and capital gains distributions. The CDSCs are as follows:
YEAR OF REDEMPTION AFTER PURCHASE CDSC
---------------------------------- ----
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
After Sixth Year None
Class B shares will automatically convert into Class A shares approximately
eight years after purchase. Class B shares of the Fund issued in connection with
the Reorganization with respect to Class B shares of the Disappearing Funds will
convert to Class A shares eight years after the purchase of the original shares
of the Disappearing 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 NAV 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 amount of the CDSC is based on the
lesser of the NAV of the Class C shares at the time of purchase or redemption.
There is no CDSC on Class C shares acquired through the reinvestment of
dividends and capital gains distributions.
WAIVERS OF CDSC. The CDSC 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 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.
C-3
<PAGE>
REINSTATEMENT PRIVILEGE. Class B and Class C shareholders who have redeemed
their shares in any open-end Pilgrim Fund or ING 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 Investment Company Act of 1940 applicable to each class of shares of
the Fund ("Rule 12b-1 Plan"). Under the Rule 12b-1 Plan, the ING Pilgrim
Securities, Inc. (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 and Class C shares.
DISTRIBUTION AND SERVICING FEES. As compensation for services rendered and
expenses borne by the Distributor in connection with the distribution of shares
of the Fund and 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% 0.10%
Class B 0.25% 0.50%
Class C 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 and Class C 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.
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 Trustees
who are not affiliated with ING Pilgrim Investments, Inc. ("ING 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 minimum initial
investment for a pre-authorized retirement plan is $100, plus monthly
investments of at least $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. ING Pilgrim Investments reserves the right to waive
minimum investment amounts.
C-4
<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
open for business. The NAV of each Class 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, and for situations where market
quotations are deemed unreliable. 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. When market quotations are not readily available or are deemed
unreliable, securities are valued at their fair value as determined in good
faith under the supervision of the Board of Trustees. Valuing securities at fair
value involves greater reliance on judgment than valuing securities that have
readily available market quotations. 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. State Street Bank
and Trust Company ("SSB") acts as the custodian under these plans. For further
information, contact the Shareholder Servicing Agent at (800) 992-0180. SSB
currently receives a $12 custodian fee annually for the maintenance of such
accounts.
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
C-5
<PAGE>
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. ING
Pilgrim Investments reserves the right to prohibit excessive exchanges (more
than four per year). ING 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.
The Fund may change or cancel its exchange policies at any time, upon sixty
days' written notice to shareholders.
Shares of one Class of the Fund generally may be exchanged for shares of
that same Class of any other open-end Pilgrim Fund or ING Fund without payment
of any additional sales charge. In most instances, if you exchange and
subsequently redeem your shares, any applicable CDSC will be based on the full
period of the share ownership. Shareholders exercising the exchange privilege
with any other open-end Pilgrim Fund or ING 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.
You will automatically have the ability to request an exchange by calling
the Shareholder Service Agent unless you mark the box on the Account Application
that indicates that you do not wish to have the telephone exchange privilege.
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.
C-6
<PAGE>
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 of $100 or more 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. 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. ING Pilgrim Investments has overall responsibility for
the management of the Fund. The Fund and ING Pilgrim Investments have entered
into an agreement that requires ING Pilgrim Investments to provide or oversee
all investment advisory and portfolio management services for the Fund. ING
Pilgrim Investments provides the Fund with office space, equipment and personnel
necessary to administer the Fund. The agreement with ING Pilgrim Investments can
be canceled by the Board of Trustees of the Fund upon 60 days' written notice.
Organized in December 1994, ING Pilgrim Investments is registered as an
investment adviser with the Securities and Exchange Commission. As of September
30, 2000, ING Pilgrim Investments managed over $20.7 billion in assets. ING
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. ING Pilgrim Investments and the Distributor
are indirect, wholly owned subsidiaries of ING Groep N.V. (NYSE: ING) ("ING
Group"). ING Group is a global financial institution active in the field of
insurance, banking and asset management in more than 65 countries, with almost
100,000 employees.
SHAREHOLDER SERVICING AGENT. ING 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. ING Pilgrim Investments will place orders to
execute securities transactions that are designed to implement the Fund's
investment objectives and policies. ING 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, ING Pilgrim Investments may consider
brokerage and research services provided by a broker to ING Pilgrim Investments
or its affiliates, and the Fund may pay a commission for effecting a securities
C-7
<PAGE>
transaction that is in excess of the amount another broker would have charged if
ING 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, ING Pilgrim Investments may place
securities transactions with brokers that provide certain services to the Fund.
ING Pilgrim Investments also may consider a broker's sale of Fund shares if ING
Pilgrim Investments is satisfied that the Fund would receive best execution of
the transaction from that broker.
DIVIDENDS, DISTRIBUTIONS & TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund generally distributes most or all of
its net earnings in the form of dividends. The Fund pays dividends, if any,
monthly. The Fund distributes 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
the Pilgrim Prospectus, elect to have all dividends and other distributions paid
on a Class A, B and C account in the Fund invested into a Pilgrim Fund or ING
Fund which offers the same Class shares.
FEDERAL TAXES. The following information is meant as a general summary for
U.S. shareholders. Please see the Fund's Statement of Additional Information for
additional information. You should rely on your own tax adviser for advice about
the particular federal, state and local tax consequences to you of investing in
the Fund.
The Fund will distribute most of its net investment income and net capital
gains to its shareholders each year. Although the Fund will not be taxed on
amounts it distributes, most shareholders will be taxed on amounts they receive.
A particular distribution generally will be taxable as either ordinary income or
long-term capital gains. It does not matter how long you have held your Fund
shares or whether you elect to receive your distributions in cash or reinvest
them in additional Fund shares. For example, if the Fund designates a particular
distribution as a long-term capital gains distribution, it will be taxable to
you at your long-term capital gains rate.
Dividends declared by the Fund in October, November or December and paid
during the following January may be treated as having been received by
shareholders in the year the distributions were declared.
You will receive an annual statement summarizing your dividend and capital
gains distributions.
If you invest through a tax-deferred account, such as a retirement plan,
you generally will not have to pay tax on dividends until they are distributed
from the account. These accounts are subject to complex tax rules, and you
should consult your tax adviser about investment through a tax-deferred account.
There may be tax consequences to you if you sell or redeem Fund shares. You
will generally have a capital gain or loss, which will be long-term or
short-term, generally depending on how long you hold those shares. If you
exchange shares, you may be treated as if you sold them. You are responsible for
any tax liabilities generated by your transactions.
As with all mutual funds, the Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to you if you
fail to provide the Fund with your correct taxpayer identification number or to
make required certifications, or if you have been notified by the IRS that you
are subject to backup withholding. Backup withholding is not an additional tax;
rather, it is a way in which the IRS ensures it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.
C-8
<PAGE>
FINANCIAL HIGHLIGHTS
For the year ended June 30, 2000 and 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 CLASS B
--------------------------------- -------------------------------
THREE THREE
YEAR MONTHS JULY 27, YEAR MONTHS JULY 27,
ENDED ENDED 1998(1) TO ENDED ENDED 1998(1) TO
JUNE 30, JUNE 30, MARCH 31, JUNE 30, JUNE 30, MARCH 31,
2000 1999(2) 1999 2000 1999(2) 1999
---- ------- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 12.59 12.89 13.08 12.33 12.61 12.78
Income from investment operations:
Net investment income $ 0.92 0.26 0.53 0.88 0.18 0.45
Net realized and unrealized
gains (loss) on investments $ (0.52) (0.42) (0.08) (0.53) (0.33) (0.05)
Total from investment operations $ 0.40 (0.16) 0.45 0.35 (0.15) 0.40
Less distributions from:
Net investment income $ 0.92 0.14 0.53 0.88 0.13 0.46
Net realized gains on investments $ -- -- 0.11 -- -- 0.11
Net asset value, end of period $ 12.07 12.59 12.89 11.80 12.33 12.61
Total Return(3): % 3.42 (1.23) 5.60 3.00 (1.20) 5.17
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 2,726 2,736 5,751 4,460 5,658 6,637
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 0.96 0.90 0.96 1.36 1.29 1.37
Gross expenses prior to expense
reimbursement(4) % 2.64 1.56 1.98 3.04 1.95 2.42
Net investment income (loss)
after expense reimbursement(4)(5) % 7.69 5.88 5.81 7.29 5.49 5.35
Portfolio turnover % 168 69 274 168 69 274
CLASS C CLASS Q
--------------------------------- ---------------------------------
THREE THREE
YEAR MONTHS JULY 27, YEAR MONTHS JULY 27,
ENDED ENDED 1998(1) TO ENDED ENDED 1998(1) TO
JUNED 30, JUNE 30, MARCH 31, JUNED 30, JUNE 30, MARCH 31,
2000 1999(2) 1999 2000 1999(2) 1999
---- ------- ---- ---- ------- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 12.81 13.10 13.27 11.99 12.26 12.43
Income from investment operations:
Net investment income $ 0.87 0.19 0.48 0.94 0.25 0.48
Net realized and unrealized
gains (loss) on investments $ (0.51) (0.35) (0.06) (0.54) (0.38) (0.04)
Total from investment operations $ 0.36 (0.16) 0.42 0.40 (0.13) 0.44
Less distributions from:
Net investment income $ 0.87 0.13 0.48 0.94 0.14 0.50
Net realized gains on investments $ -- -- 0.11 -- -- 0.11
Net asset value, end of period $ 12.30 12.81 13.10 11.45 11.99 12.26
Total Return(3): % 3.02 (1.21) 5.19 3.55 1.16 5.78
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 3,966 7,965 8,128 228 171 314
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 1.36 1.29 1.36 0.86 0.71 0.69
Gross expenses prior to expense
reimbursement(4) % 3.04 1.95 2.41 2.54 1.37 1.74
Net investment income (loss)
after expense reimbursement(4)(5) % 7.29 5.49 5.36 7.79 6.07 6.03
Portfolio turnover % 168 69 274 168 69 274
</TABLE>
----------
(1) The Fund commenced operations on July 27, 1998.
(2) Effective May 24, 1999, ING Pilgrim Investments, Inc., became the
Investment Manager of the Fund and the Fund changed its year end to June
30.
(3) 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.
(4) Annualized for periods less than one year.
(5) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
C-9
<PAGE>
APPENDIX D
The following is a list of the ING Funds and Pilgrim Funds and the classes of
shares of each Fund that are expected to be offered at or shortly after the
Reorganization:
FUND CLASSES OFFERED
---- ---------------
ING FUNDS
U.S. EQUITY
Internet Fund A, B and C
Tax Efficient Equity Fund A, B and C
GLOBAL/INTERNATIONAL EQUITY
European Equity Fund A, B and C
Global Communications Fund A, B and C
Global Information Technology Fund A, B and C
FIXED INCOME
High Yield Bond Fund A, B and C
Intermediate Bond Fund A, B and C
Money Market Fund A, B, C and I
National Tax-Exempt Bond Fund A, B and C
PILGRIM FUNDS
U.S. EQUITY
Balanced Fund A, B, C, Q and T
Bank and Thrift Fund A and B
Convertible Fund A, B, C and Q
Corporate Leaders Trust Fund A
Growth and Income Fund A, B, C and Q
Growth + Value Fund A, B, C and Q
Growth Opportunities Fund A, B, C, Q, I and T
LargeCap Growth Fund A, B, C and Q
MagnaCap Fund A, B, C, Q and M
MidCap Growth Fund A, B, C and Q
MidCap Opportunities Fund A, B, C, Q and I
Research Enhanced Index Fund A, B, C, Q and I
SmallCap Growth Fund A, B, C, Q
SmallCap Opportunities Fund A, B, C, Q, I and T
GLOBAL/INTERNATIONAL EQUITY
Asia-Pacific Equity Fund A, B and M
Emerging Countries Fund A, B, C and Q
Gold Fund (to be renamed Precious Metals Fund) A
International Fund A, B, C and Q
International Core Growth Fund A, B, C and Q
International SmallCap Growth Fund A, B, C and Q
International Value Fund A, B, C and Q
Troika Dialog Russia Fund A
Worldwide Growth Fund A, B, C and Q
FIXED INCOME
GNMA Income Fund A, B, C, Q, M and T
High Yield Fund A, B, C, Q and M
High Yield Fund II A, B, C, Q and T
Lexington Money Market Trust A
Pilgrim Money Market Fund A, B and C
Strategic Income Fund A, B, C and Q
D-1
<PAGE>
APPENDIX E
As of December 1, 2000, the following persons owned beneficially or of
record 5% or more of the outstanding shares of the specified Class of Pilgrim
Strategic Income Fund:
<TABLE>
<CAPTION>
% OF CLASS % OF FUND % OF FUND
BEFORE BEFORE AFTER
NAME AND ADDRESS CLASS REORGANIZATION REORGANIZATION REORGANIZATION
---------------- ----- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Wachovia Securities Inc. FBO Class C 6.63% 1.99%
#288-00397-10
PO Box 1220
Charlotte, NC 28201
First Clearing Corp FBO Class B 5.11% 2.30%
Harbor Associates
230 Normandy Circle
Palm Harbour, FL 34683
Eastern Bank & Trust FBO Class A 13.50% 3.11%
Munksjo Paper 401k
217 Essex Street
Salem, MA 01970
</TABLE>
As of December 1, 2000, the following persons owned beneficially or of
record 5% or more of the outstanding shares of the specified Class of ING
International Bond Fund:
<TABLE>
<CAPTION>
% OF CLASS % OF FUND % OF FUND
BEFORE BEFORE AFTER
NAME AND ADDRESS CLASS REORGANIZATION REORGANIZATION REORGANIZATION
---------------- ----- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ING America Insurance Holdings, Inc. Class A 97.19% 92.81%
Investment Accounts
5780 Powers Ferry Road, N.W.
Atlanta, GA 30327-4349
Southwest Securities Inc FBO Class B 5.38% 0.23%
James F. Berschback
PO Box 509002
Dallas, TX 75250
Bear Stearns Securities Corp FBO Class B 6.45% 0.28%
Acct #981-96255-19
1 Metrotech Center North
Brooklyn, NY 11201
Jane F. Hahn Class C 25.27% 0.04%
577 W. 5th Avenue
Roselle, NJ 07203
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
% OF CLASS % OF FUND % OF FUND
BEFORE BEFORE AFTER
NAME AND ADDRESS CLASS REORGANIZATION REORGANIZATION REORGANIZATION
---------------- ----- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Laurelle C. Muehling Class C 48.49% 0.09%
25 Ione Dr., Unit B
South Elgin, 60177
State Street Bank & Trust Cust FBO Class C 6.72% 0.01%
Norris L. Flowers IRA
8815 N. Anita Ave.
Kansas City, MO 64154
Christopher M. Everett Trust Class C 14.36% 0.03%
4472 Hosner Road
Oxford, MI 48370
State Street Bank & Trust Cust FBO Class B 6.50% 0.38%
Gurbakhsh Kapur Roth IRA
18982 Harrison Avenue
Livonia, MI 48152
State Street Bank & Trust Cust FBO Class B 8.73% 0.38%
Sonja L. Wayman IRA
5305 Gallatin Pl.
Boulder, CO 80303
</TABLE>
E-2
<PAGE>
PART B
PILGRIM MUTUAL FUNDS
--------------------------------------------------------------------------------
Statement of Additional Information
__________ __, 2000
--------------------------------------------------------------------------------
Acquisition of the Assets and Liabilities By and in Exchange for Shares of
of ING International Bond Fund Pilgrim Strategic Income Fund
(each a series of ING Funds Trust) (a series of Pilgrim Mutual Funds)
1475 Dunwoody Drive 7337 E. Doubletree Ranch Road
West Chester, Pennsylvania 19380 Scottsdale, Arizona 85258
This Statement of Additional Information is available to the Shareholders of ING
International Bond Fund in connection with a proposed transaction whereby all of
the assets and liabilities of ING International Bond Fund, a series of ING Funds
Trust, will be transferred to Pilgrim Strategic Income Fund, a series of Pilgrim
Mutual Funds, in exchange for shares of Pilgrim Strategic Income 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 Strategic Income Fund
dated November 1, 2000, as filed on November 1, 2000.
2. The Statement of Additional Information for ING International Bond Fund
dated November 6, 2000, as filed on November 6, 2000.
3. The Financial Statements of Pilgrim Strategic Income Fund are included in
the Annual Report of Pilgrim Mutual Funds dated June 30, 2000, as filed on
September 7, 2000.
4. The Financial Statements of ING International Bond Fund are included in the
Annual Report of ING Funds Trust dated October 31, 1999, as filed on
December 29, 1999.
5. The Financial Statement of ING International Bond Fund are included in the
Semi-Annual Report of ING Funds Trust dated April 30, 2000, as filed on
July 7, 2000.
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated ________ ___, 2000 relating to the reorganization of
ING International Bond Fund may be obtained, without charge, by writing to ING
Pilgrim 7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258 or calling
(800) 992-0180. This Statement of Additional Information should be read in
conjunction with the Proxy Statement/Prospectus.
1
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
Shown below are financial statements for each Fund and pro forma financial
statements for the combined Fund, assuming the reorganization is consummated, as
of June 30, 2000. The first table presents Statements of Assets and Liabilities
(unaudited) for each Fund and pro forma figures for the combined Fund. The
second table presents Statements of Operations (unaudited) for each Fund and pro
forma figures for the combined Fund. The third table presents Portfolio of
Investments (unaudited) for each Fund and pro forma figures for the combined
Fund. The tables are followed by the Notes to the Pro Forma Financial Statements
(unaudited).
STATEMENTS OF ASSETS AND LIABILITIES AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PILGRIM ING
STRATEGIC INTERNATIONAL
INCOME BOND PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities at market value* $ 10,907,360 $ 22,160,636 $ 33,067,996
Short-term investments at amortized cost 289,000 685,000 974,000
Foreign currencies** -- 864,779 864,779
Cash 15,968 2,543 18,511
Receivables: --
Fund shares sold 86,185 -- 86,185
Dividends and interest 158,632 404,218 562,850
Due from affiliate 13,244 8,002 21,246
Investment securities sold 202,924 2,028,731 2,231,655
Other -- 3,544,414 3,544,414
Prepaid expenses 21,534 20,149 41,683
------------ ------------ ------------ ------------
Total Assets 11,694,847 29,718,472 41,413,319
------------ ------------ ------------ ------------
LIABILITIES:
Payable for investment securities purchased 250,000 6,282,714 250,000
Payable for fund shares redeemed 15,577 27,538 15,577
Other accrued expenses and liabilities 49,086 47,470 6,406,808
------------ ------------ ------------ ------------
Total Liabilities 314,663 6,357,722 6,672,385
------------ ------------ ------------ ------------
NET ASSETS $ 11,380,184 $ 23,360,750 $ 34,740,934
============ ============ ============ ============
NET ASSETS CONSIST OF:
Paid-in capital $ 12,441,162 $ 28,121,149 $ 40,562,311
Undistributed (overdistributed) net investment income 491,239 (1,444) 489,795
Accumulated net realized (loss) on investments
and foreign currency transactions (1,342,971) (2,993,160) (4,336,131)
Net unrealized (depreciation) of investments
and other assets, liabilities and forward contracts
denominated in foreign currencies (209,246) (1,765,795) (1,975,041)
------------ ------------ ------------ ------------
Net Assets $ 11,380,184 $ 23,360,750 $ 34,740,934
============ ============ ============ ============
CLASS A:
Net Assets $ 2,726,254 $ 22,260,938 $ 24,987,192
Shares outstanding 225,777 2,698,562 (854,242)(A) 2,070,097
Net asset value and redemption price per share $ 12.07 $ 8.25 $ 12.07
Maximum offering price per share $ 12.67 $ 8.75 $ 12.67
CLASS B:
Net Assets $ 4,460,163 $ 468,676 $ 591,418 (B) $ 5,520,257
Shares outstanding 377,987 56,867 32,971 (B) 467,825
Net asset value and redemption price per share $ 11.80 $ 8.24 $ 11.80
Maximum offering price per share $ 11.80 $ 8.24 $ 11.80
CLASS C:
Net Assets $ 3,966,076 $ 39,628 $ 4,005,704
Shares outstanding 322,466 4,801 (1,579)(A) 325,688
Net asset value and redemption price per share $ 12.30 $ 8.25 $ 12.30
Maximum offering price per share $ 12.30 $ 8.25 $ 12.30
CLASS Q:
Net Assets $ 227,691 N/A $ 90 (C) $ 227,781
Shares outstanding 19,891 N/A 8 (C) 19,899
Net asset value and redemption price per share $ 11.45 N/A $ 11.45
Maximum offering price per share $ 11.45 N/A $ 11.45
CLASS I:
Net Assets N/A $ 90 (90)(C) N/A
Shares outstanding N/A 11 (11)(C) N/A
Net asset value and redemption price per share N/A $ 8.23 N/A
Maximum offering price per share N/A $ 8.23 N/A
CLASS X:
Net Assets N/A $ 591,418 $ (591,418)(B) N/A
Shares outstanding N/A 71,708 (71,708)(B) N/A
Net asset value and redemption price per share N/A $ 8.25 N/A
Maximum offering price per share N/A $ 8.25 N/A
* Cost of securities $ 11,116,606 $ 22,216,107 $ 33,332,713
** Cost of foreign currencies -- $ 868,565 $ 868,565
</TABLE>
(A) Reflects new shares issued, net of retired shares of the Fund.
(B) Reflects the merging of Class X into Class B.
(C) Reflects the merging of Class I into Class Q.
See Accompanying Notes to Financial Statements
2
<PAGE>
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
PILGRIM ING
STRATEGIC INTERNATIONAL
INCOME BOND PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 2000 2000 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends, net of foreign taxes $ 65,811 $ 1,212,792
Interest 1,073,053 $ 1,146,981 1,073,053
----------- ----------- ----------- -----------
Total investment income 1,138,864 1,146,981 -- 2,285,845
----------- ----------- ----------- -----------
EXPENSES:
Investment management fees 59,874 241,048 (132,770)(A) 168,152
Distribution expenses
Class A 10,355 171,570 (91,502)(A) 90,423
Class B 37,680 4,934 5,424 (C) 48,038
Class C 38,579 242 (61)(A) 38,760
Class Q 444 -- 444
Class X -- 6,657 (6,657)(C) --
Transfer agent and registrar fees 110,300 77,761 188,061
Shareholder Reporting 6,894 11,548 18,442
Registration and filing fees 76,124 45,442 (22,721)(B) 98,845
Recordkeeping and pricing fees 10,474 47,236 (23,618)(B) 34,092
Professional fees 4,341 31,885 (25,508)(B) 10,718
Custodian fees 6,768 27,403 34,171
Shareholder servicing fees 4,683 4,683
Directors' fees 961 519 (415)(B) 1,065
Insurance 247 247
Miscellaneous 7,570 8,032 15,602
Interest and credit facility fee 1,218 1,218
----------- ----------- ----------- -----------
Total expenses 376,512 674,277 (297,828) 752,961
----------- ----------- ----------- -----------
Less:
Waived and reimbursed fees 208,068 304,400 (191,270)(A) 321,198
Earnings credits 174 174
----------- ----------- ----------- -----------
Net expenses 168,270 369,877 (106,558) 431,589
----------- ----------- ----------- -----------
Net investment income (loss) 970,594 777,104 106,558 1,854,256
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) from:
Investments (763,126) (1,669,153) (2,432,279)
Foreign currency transactions (1,151) (79,658) (80,809)
Net change in unrealized appreciation (depreciation) of:
Investments 132,524 (51,193) 81,331
Translation of other assets, liabilities and forward
contracts denominated in foreign currencies 897 43,749 44,646
----------- ----------- ----------- -----------
Net (loss) from investments and foreign currencies (630,856) (1,756,255) -- (2,387,111)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 339,738 $ (979,151) $ 106,558 $ (532,855)
=========== =========== =========== ===========
</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 merging of Class X into Class B.
See Accompanying Notes to Financial Statements
3
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED)
As of June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PILGRIM ING PILGRIM ING
STRATEGIC INTERNATIONAL STRATEGIC INTERNATIONAL
INCOME BOND PRO FORMA INCOME BOND PRO FORMA
PRINCIPAL PRINCIPAL PAR VALUE MARKET VALUE MARKET VALUE MARKET VALUE
--------- ----------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CORPORATE BONDS: 12.10%
BANKS: 0.99%
200,000 200,000 Wachovia Corp., 6.605%, due 10/01/25 $ 195,400 $ 195,400
155,000 155,000 @@ Banco Santander-Chile, 6.500%, due 11/01/05 148,105 148,105
------------ ------------ ------------
343,505 -- 343,505
------------ ------------ ------------
BROADCASTING, RADIO & TELEVISION: 0.36%
220,000 220,000 + CD Radio, Inc., 0/15.000% due 12/01/2007 126,500 126,500
------------ ------------ ------------
CABLE AND DBS: 1.64%
1,000,000 1,000,000 + Charter Communications Holdings, 0/11.750%,
due 01/15/10 568,750 568,750
------------ ------------ ------------
COMMUNICATIONS - INTERNET: 1.39%
250,000 250,000 Exodus Communications, 11.625%, due 7/15/10 250,625 250,625
250,000 250,000 # Psinet Inc., 11.000%, due 8/01/09 231,250 231,250
------------ ------------ ------------
481,875 -- 481,875
------------ ------------ ------------
COMMUNICATIONS - WIRELESS: 1.34%
375,000 375,000 + Crown Castle Int'l Corp. 0/11.250%,
due 8/01/11 234,375 234,375
500,000 500,000 + Winstar Communications Inc., 0/14.750%,
due 04/15/10 232,500 232,500
------------ ------------ ------------
466,875 -- 466,875
------------ ------------ ------------
COMMUNICATIONS - WIRELINE: 3.32%
500,000 500,000 + Pinnacle Holdings, Inc., 0/10.000%,
due 03/15/08 345,000 345,000
500,000 500,000 + ICG Services, Inc., 0/10.000%, due 02/15/2008 260,000 260,000
250,000 250,000 # Globenet Communications Group, Ltd., 13.000%,
due 07/15/07 252,188 252,188
100,000 100,000 Global Telesystems Group, Inc., 9.875%,
due 02/15/05 71,000 71,000
450,000 450,000 #+ United Pan-Europe Communications, 0/12.500%,
due 08/01/09 226,125 226,125
------------ ------------ ------------
1,154,313 -- 1,154,313
------------ ------------ ------------
FINANCIAL - OTHER SERVICES: 0.15%
60,000 60,000 # Cerro Negro Finance, Ltd., 7.330%,
due 12/01/09 51,937 51,937
------------ ------------ ------------
RETAIL - DISCOUNT: 0.84%
300,000 300,000 Wal-Mart Stores, 6.875%, due 08/10/09 293,358 293,358
------------ ------------ ------------
SEMICONDUCTOR/ELECTRONIC COMPONENTS: 0.56%
200,000 200,000 Motorola, Inc., 6.500%, due 09/01/25 192,849 192,849
------------ ------------ ------------
TELECOM SERVICES: 0.51%
200,000 200,000 Lucent Technologies, 6.450%, due 03/15/29 176,642 176,642
------------ ------------ ------------
TRANSPORTATION (AIR, BUS, RAIL): 0.69%
250,000 250,000 Atlas Air, Inc., 9.250%, due 04/15/08 238,750 238,750
------------ ------------ ------------
UTILITIES: 0.31%
100,000 100,000 # East Coast Power LLC, 7.536%, due 06/30/17 89,500 89,500
20,000 20,000 Enersis S.A., 6.600%, due 12/01/26 19,020 19,020
------------ ------------ ------------
108,520 -- 108,520
------------ ------------ ------------
TOTAL CORPORATE BONDS:
(COST: $4,405,371, $0, $4,405,371) 4,203,874 -- 4,203,874
------------ ------------ ------------
FOREIGN BONDS: 42.04%
1,000,000 1,000,000 Belgium Government International Bond,
6.375%, due 07/21/05 $ 989,377 989,377
1,020,000 1,020,000 A Bonos y Oblig Del Estado, 4.50%,
due 07/30/04 946,085 946,085
423,000 423,000 A Bundesobligation, 4.750%, due 11/20/01 402,890 402,890
240,000 240,000 Canadian Government Bond, 6.375%,
due 07/21/05 232,735 232,735
7,270,000 7,270,000 E Denmark Government Bond, 6.000%,
due 11/15/02 933,218 933,218
894,000 894,000 A Deutsche Bundesrepublik, 6.000%,
due 07/04/07 892,212 892,212
1,630,000 1,630,000 A Deutsche Bundesrepublik, 5.6250%,
due 01/04/08 1,576,317 1,576,317
150,000 150,000 C Development Bank of Japan, 9.125%,
due 01/31/05 246,771 246,771
240,000 240,000 C Export-Import Bank of Japan, 8.000%,
due 02/05/07 388,770 388,770
600,000 600,000 A Federal Republic of Germany, 3.250%,
due 09/15/00 571,274 571,274
340,000 340,000 A Italy Buoni Poliennali Del Tesoro, 4.50%,
due 05/01/09 301,246 301,246
280,000 280,000 C Japan Finance Corp. Muni Ent., 6.375%,
due 03/09/04 419,949 419,949
186,800,000 186,800,000 B Japan Government Two Year Bond, 0.300%,
due 10/22/01 1,759,597 1,759,597
186,800,000 186,800,000 B Japan Government Two Year Bond, 0.5000%,
due 04/22/02 1,761,230 1,761,230
260,000 260,000 C Kansai International Airport, 7.375%,
due 09/24/07 409,533 409,533
916,000 916,000 A Netherlands Government Bond, 5.250%,
due 07/15/08 870,526 870,526
230,000 230,000 F Queensland Treasury, 6.500%, due 06/14/05 138,273 138,273
830,000 830,000 A Republic of Italy, 3.750%, due 09/01/02 770,095 770,095
8,700,000 8,700,000 D Sweden Government Bond, 5.500%, due 04/12/02 993,773 993,773
------------ ------------ ------------
TOTAL FOREIGN BONDS
(COST: $0, $15,634,797, $15,634,797) -- 14,603,871 14,603,871
------------ ------------ ------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PILGRIM ING PILGRIM ING
STRATEGIC INTERNATIONAL STRATEGIC INTERNATIONAL
INCOME BOND PRO FORMA INCOME BOND PRO FORMA
PRINCIPAL PRINCIPAL PAR VALUE MARKET VALUE MARKET VALUE MARKET VALUE
--------- ----------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SUPRA-NATIONAL ENTITY: 5.37%
960,000 960,000 Asian Development Bank 943,088 943,088
480,000 480,000 Inter-American Development Bank 460,822 460,822
500,000 500,000 Inter-American Development Bank 460,083 460,083
------------ ------------ ------------
TOTAL SUPRA-NATIONAL ENTITY
($0, $1,959,500, $1,959,500) -- 1,863,993 1,863,993
------------ ------------ ------------
U.S. TREASURY OBLIGATIONS: 19.77%
900,000 900,000 U.S. Treasury Bond, 6.000%, due 08/15/04 891,558 891,558
400,000 400,000 U.S. Treasury Bond, 6.000%, due 08/15/09 396,812 396,812
1,350,000 1,350,000 U.S. Treasury Bond, 7.250%, due 05/15/16 1,485,844 1,485,844
1,330,000 1,330,000 U.S. Treasury Bond, 7.500%, due 11/15/16 1,498,329 1,498,329
800,000 800,000 U.S. Treasury Note, 6.125%, due 08/15/29 808,000 808,000
600,000 600,000 U.S. Treasury Note, 7.250%, due 05/15/16 661,314 661,314
1,110,000 1,110,000 U.S. Treasury Note, 4.250%, due 01/15/10 1,126,650 1,126,650
------------ ------------ ------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST: $2,728,924, $4,117,386, $6,846,310) 2,757,684 4,110,823 6,868,507
------------ ------------ ------------
U.S. GOVERNMENT AGENCY OBLIGATIONS: 7.70%
FEDERAL HOME LOAN MORTGAGE CORPORATION: 2.29%
184,617 184,617 5.500%, due 1/1/14 171,635 171,635
95,821 95,821 5.500%, due 2/1/14 89,083 89,083
471,883 471,883 7.000%, due 6/1/29 456,986 456,986
15,614 15,614 9.000%, due 6/1/06 16,234 16,234
40,848 40,848 9.500%, due 11/1/05 42,750 42,750
16,417 16,417 10.000%, due 10/1/03 17,212 17,212
------------ ------------ ------------
793,900 -- 793,900
------------ ------------ ------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION: 5.40%
87,931 87,931 6.500%, due 2/1/09 85,183 85,183
750,000 750,000 7.125%, due 2/15/05 750,375 750,375
500,000 500,000 7.250%, due 1/15/10 503,200 503,200
20,974 20,974 9.500%, due 5/1/07 21,950 21,950
18,460 18,460 9.500%, due 6/1/05 19,320 19,320
18,018 18,018 9.500%, due 7/1/06 18,857 18,857
18,399 18,399 10.000%, due 10/1/05 19,870 19,870
300,000 300,000 C 6.8750%, due 06/07/02 457,386 457,386
------------ ------------ ------------
1,418,755 457,386 1,876,141
------------ ------------ ------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION: 0.01%
3,606 3,606 8.500%, due 2/15/21 3,729 3,729
678 678 11.500%, due 7/15/13 752 752
422 422 11.500%, due 2/15/13 438 438
------------ ------------ ------------
4,919 -- 4,919
------------ ------------ ------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST: $2,244,844, $504,424, $2,749,268) 2,217,574 457,386 2,674,960
------------ ------------ ------------
COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET-BACKED SECURITIES: 2.51%
MORTGAGE -- COMMERCIAL: 1.39%
288,304 288,304 GMCC 1999 C-3 A1A 6.974%, due 5/15/08 283,790 283,790
210,000 210,000 Allied Capital Commercial Mortgage,
1998 1 C, 6.710%, due 12/25/04 199,974 199,974
------------ ------------ ------------
483,764 -- 483,764
------------ ------------ ------------
MORTGAGE -- RESIDENTIAL: 1.12%
300,000 300,000 Emergent Home Equity Loan Trust 7.080%,
due 12/15/28 292,477 292,477
100,000 100,000 Saxon Asset Securities Trust 1999 1 AF3,
6.170%, due 08/25/21 97,399 97,399
------------ ------------ ------------
389,876 -- 389,876
------------ ------------ ------------
TOTAL CMO'S AND ASSET BACKED SECURITIES
(COST: $885,971, $0, $885,971) 873,640 -- 873,640
------------ ------------ ------------
Shares PREFERRED STOCK: 0.81%
----------------------------------- COMMUNICATIONS -- INTERNET: 0.81%
2,853 2,853 @ Nextlink Communications 282,150 282,150
------------ ------------ ------------
TOTAL PREFERRED STOCK
(COST: $240,842, $0, $240,842) 282,150 -- 282,150
------------ ------------ ------------
MUTUAL FUNDS: 1.65%
INVESTMENT COMPANIES: 1.65%
64,500 64,500++ Pilgrim Prime Rate Trust 572,438 572,438
------------ ------------ ------------
TOTAL MUTUAL FUNDS
(COST: $610,654, $0, $610,654) 572,438 -- 572,438
------------ ------------ ------------
TOTAL LONG-TERM INVESTMENTS
(COST: $11,116,606, $22,216,107,
$33,332,713) 10,907,360 21,036,073 31,943,433
------------ ------------ ------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PILGRIM ING PILGRIM ING
STRATEGIC INTERNATIONAL STRATEGIC INTERNATIONAL
INCOME BOND PRO FORMA INCOME BOND PRO FORMA
PRINCIPAL PRINCIPAL PAR VALUE MARKET VALUE MARKET VALUE MARKET VALUE
--------- ----------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS: 6.04%
REPURCHASE AGREEMENTS: 2.80%
289,000 289,000 State Street Repurchase Agreement, 6.200%,
due 07/03/00 289,000 289,000
685,000 685,000 State Street Repurchase Agreement, 6.550%,
due 07/03/00 685,000 685,000
------------ ------------ ------------
289,000 685,000 974,000
------------ ------------ ------------
FOREIGN GOVERNMENT OBLIGATIONS: 3.24%
1,190,000 1,190,000 A French Discount Treasury Bills, 0.000%,
due 09/28/00 1,124,563 1,124,563
------------ ------------ ------------
TOTAL SHORT-TERM INVESTMENTS
(COST: $289,000, $1,821,646, $2,110,646) 289,000 1,809,563 2,098,563
------------ ------------ ------------
TOTAL INVESTMENTS IN SECURITIES
(COST: $11,405,606, $24,037,753,
$35,443,359) 97.99% 11,196,360 22,845,636 34,041,996
OTHER ASSETS AND LIABILITIES-NET 2.01% 183,824 515,114 698,938
------ ------------ ------------ ------------
NET ASSETS 100.00% $ 11,380,184 $ 23,360,750 $ 34,740,934
====== ============ ============ ============
</TABLE>
+ Step-up basis bonds. Interest rates shown reflect current and future coupon
rates.
++ Related party.
# Securities purchased pursuant to Rule 144A under the Securities Act
of 1933 and may not be resold subject to that rule except to qualified
institutional buyers.
@@ Foreign Issuer
A Amount listed in Euro Dollar
B Amount listed in Japanese Yen
C Amount listed in British Pounds
D Amount listed in Swedish Krona
E Amount listed in Danish Krone
F Amount listed in Australian Dollar
See Accompanying Notes to Financial Statements
6
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF COMBINATION:
On November 2, 2000, the Board of Pilgrim Strategic Income Fund
("Strategic Income Fund") and on November 16, 2000 the Board of ING
International Bond Fund ("International Bond Fund"), approved an Agreement and
Plan of Reorganization (the "Plan") whereby, subject to approval by the
shareholders of International Bond Fund, Strategic Income Fund will acquire all
the assets of International Bond 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 Strategic Income Fund (the "Merger").
The Merger will be accounted for as a tax free merger of investment
companies. The unaudited 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, 2000. The unaudited pro forma portfolio of
investments, and statement of assets and liabilities reflect the financial
position of Strategic Income Fund and International Bond Fund at June 30, 2000.
The unaudited pro forma statement of operations reflects the results of
operations of Strategic Income Fund and International Bond Fund for the year
ended June 30, 2000. 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 Strategic Income Fund and International Bond 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 Strategic Income Fund for pre-combination periods will
not be restated.
The unaudited 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 or 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. 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.
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. 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 Directors. Investments in securities maturing in less than 60 days are
valued at cost, which, when combined with accrued interest, approximates market
value.
NOTE 3 - CAPITAL SHARES:
The unaudited pro forma net asset value per share assumes additional shares
of common stock issued in connection with the proposed acquisition of
International Bond Fund by Strategic Income Fund as of June 30, 2000. The number
of additional shares issued was calculated by dividing the net asset value of
each Class of International Bond Fund by the respective Class net asset value
per share of Strategic Income Fund.
7
<PAGE>
NOTE 4 - UNAUDITED PRO FORMA ADJUSTMENTS:
The accompanying unaudited pro forma financial statements reflect changes
in fund shares as if the merger had taken place on June 30, 2000. International
Bond Fund expenses were adjusted assuming Strategic Income Fund's fee structure
was in effect for the year ended June 30, 2000.
NOTE 5 - MERGER COSTS:
Merger costs are estimated at approximately $125,000 and are not included
in the unaudited pro forma statement of operations since these costs are not
reccurring. 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 6 - 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 Fund 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.
8
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Article 5.2 of the Registrant's Amended and Restated Declaration of Trust
provides for the indemnification of Registrant's trustees, officers, employees
and agents against liabilities incurred by them in connection with the defense
or disposition of any action or proceeding in which they may be involved or with
which they may be threatened, while in office or thereafter, by reason of being
or having been in such office, except with respect to matters as to which it has
been determined that they acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of their
office ("disabling conduct").
Section 8 of Registrant's Administration Agreement provides for the
indemnification of Registrant's Administrator against all liabilities incurred
by it in performing its obligations under the agreement, except with respect to
matters involving its disabling conduct. Section 9 of Registrant's Distribution
Agreement provides for the indemnification of Registrant's Distributor against
all liabilities incurred by it in performing its obligations under the
Agreement, except with respect to matters involving its disabling conduct.
Section 4 of the Shareholder Service Agreement provides for the indemnification
of Registrant's Distributor against all liabilities incurred by it in performing
its obligations under the Agreement, except with respect to matters involving
its disabling conduct.
Registrant has obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and omissions.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended ("1933 Act"), may be permitted to trustees, 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 public policy as
expressed in the Securities 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 trustee, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, 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
Securities 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)
<PAGE>
(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)
(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(f)
(U) Form of Amendment No. 17 to Amended and Restated Declaration of Trust(f)
(V) Form of Amendment No. 18 to Amended and Restated Declaration of Trust(f)
(W) Form of Amendment No. 19 to Amended and Restated Declaration of Trust(g)
(X) Form of Amendment No. 20 to Amended and Restated Declaration of Trust(g)
(Y) Form of Amendment No. 21 to Amended and Restated Declaration of Trust(h)
(Z) Form of Certificate of Amendment to Certificate of Trust (i)
(AA) Form of Amendment No. 22 to Amended and Restated Declaration of Trust(i)
(BB) Form of Amendment No. 23 to Amended and Restated Declaration of Trust(j)
(CC) Form of Amendment No. 24 to Amended and Restated Declaration of Trust(o)
(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) Form of Agreement and Plan of Reorganization between ING Funds Trust, on
behalf of ING International Bond Fund, and Pilgrim Mutual Funds, on behalf
of Pilgrim Strategic Income Fund.
(5) See Exhibits (1) and (2)
(6)(A) Form of Investment Management Agreement between the Trust and Pilgrim
Investments, Inc.(p) Form of Portfolio Management Agreement between
Pilgrim Investments, Inc. and Nicholas-Applegate
(B) Capital Management(l)
(7) Form of Underwriting Agreement between the Trust and Pilgrim Securities,
Inc.(q)
(8) Not Applicable
2
<PAGE>
(9)(A) Form of Custodian Agreement between Registrant and Brown Brothers
Harriman & Co. dated as of June 1, 1998. (h)
(B) Form of Amendment to Custodian Agreement between Registrant and Brown
Brothers Harriman & Co. (h)
(C) Form of Foreign Custody Manager Delegation Agreement between
Registrant and Brown Brothers Harriman & Co. dated as of
June 1, 1998 (h)
(D) Form of Novation Agreement to Custody Agreement with Brown Brothers
Harriman & Co. (j)
(E) Form of Appendix C to Custody Agreement with Brown Brothers
Harriman & Co. (j)
(F) Form of Novation Agreement to Foreign Custody Manager Delegation
Agreement with Brown Brothers Harriman & Co. (j)
(G) Form of Appendix C to Foreign Custody Manager Delegation Agreement
with Brown Brothers Harriman & Co. (j)
(H) Form of Custodian Agreement with Investors Fiduciary Trust Company (j)
(10)(A) Form of Amended and Restated Service and Distribution Plan for
Class A (i)
(B) Form of Amended and Restated Service and Distribution Plan for
Class B (i)
(C) Form of Amended and Restated Service and Distribution Plan for
Class C (i)
(D) Form of Amended and Restated Service Plan for Class Q (i)
(E) Form of Amendment to Amended and Restated Service and Distribution
Plan for Class B (j)
(F) Form of Amendment to Amended and Restated Service and Distribution
Plan for Class C (j)
(G) Form of Amendment to Amended and Restated Service and Distribution
Plan for Class A (m)
(H) Form of Amendment to Amended and Restated Service and Distribution
Plan for Class T (n)
(I) Form of Multiple Class Plan Pursuant to Rule 18f-3(n)
(11) Form of Opinion and Consent of Counsel
(12) Form of Opinion and Consent of Counsel supporting tax matters and
consequences
(13)(A) Form of Administration Agreement (j)
(B) Form of Agency Agreement (j)
(C) Form of Shareholder Service Agreement (j)
(D) Form of Expense Limitation Agreement (j)
(E) Form of Recordkeeping Agreement (j)
(F) Form of Expense Limitation Agreement pertaining to Money Market
Fund (k)
(G) Form of Agreement among Reserve Institutional Trust; Reserve
Management Company, Inc.; Reserve Partners, Inc.; Pilgrim Mutual
Funds; Pilgrim Investments, Inc. with Pilgrim Securities, Inc. (k)
(H) Form of Amended and Restated Expense Limitation Agreement (o)
(14) Consents of Independent Auditors
(15) Not Applicable
(16) Filed herewith
(17) Not Applicable
3
<PAGE>
----------
(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) 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. 48 to Registrant's Form
N-1A Registration Statement on December 15, 1997 and incorporated herein by
reference.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
(k) 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.
4
<PAGE>
(l) 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.
(m) 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.
(n) 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.
(o) Filed as an exhibit to Post-Effective Amendment No. 75 to the Registrant's
Form N-1A Registration Statement on January 4, 2000 and incorporated herein
by reference.
(p) Filed as an exhibit to Post-Effective Amendment No. 80 to the Registrant's
Form N-1A Registration Statement on November 1, 2000 and incorporated
herein by reference.
(q) Filed as an exhibit to the Registrant's Form N-14 Registration Statement on
November 29, 2000 and incorporated herein by reference.
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) under the 1933 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.
5
<PAGE>
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
Scottsdale and State of Arizona on the 18th day of December, 2000.
PILGRIM MUTUAL FUNDS
By: /s/ James M. Hennessy
------------------------------------
James M. Hennessy
Senior Executive Vice President &
Secretary
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 Chairman December 18, 2000
--------------------------- Trustee and President
John G. Turner*
(Chief Executive Officer) December 18, 2000
--------------------------- Senior Vice President and
Robert W. Stallings*
Principal Financial Officer December 18, 2000
--------------------------- (Principal Financial Officer)
Michael J. Roland*
Trustee December 18, 2000
---------------------------
Robert B. Goode, Jr.*
Trustee December 18, 2000
---------------------------
Al Burton*
Trustee December 18, 2000
---------------------------
Jock Patton*
Trustee December 18, 2000
---------------------------
John R. Smith*
Trustee December 18, 2000
---------------------------
David W.C. Putnam*
Trustee December 18, 2000
---------------------------
Walter H. May*
6
<PAGE>
Trustee December 18, 2000
---------------------------
Paul S. Doherty*
Trustee December 18, 2000
---------------------------
Alan L. Gosule*
Trustee December 18, 2000
---------------------------
David W. Wallace*
* By: /s/ James M. Hennessy
---------------------
James M. Hennessy
Attorney-in-Fact**
----------
** Executed pursuant to powers of attorney filed herewith.
7
<PAGE>
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
Pilgrim Mutual Funds 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: November 10, 2000
/s/ John G. Turner /s/ Alan L. Gosule
-------------------------------- --------------------------------
John G. Turner Alan L. Gosule
/s/ Robert W. Stallings /s/ Walter H. May
-------------------------------- --------------------------------
Robert W. Stallings Walter H. May
/s/ Al Burton /s/ Jock Patton
-------------------------------- --------------------------------
Al Burton Jock Patton
/s/ Paul S. Doherty /s/ David W.C. Putnam
-------------------------------- --------------------------------
Paul S. Doherty David W.C. Putnam
/s/ Robert B. Goode, Jr. /s/ John R. Smith
-------------------------------- --------------------------------
Robert B. Goode, Jr. John R. Smith
/s/ David W. Wallace
--------------------------------
David W. Wallace
8
<PAGE>
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 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: November 14, 2000 /s/ Michael J. Roland
----------------------------------------
Michael J. Roland
9
<PAGE>
EXHIBIT INDEX
(4) Form of Agreement and Plan of Reorganization between ING Funds Trust, on
behalf of ING International Bond Fund, and Pilgrim Mutual Funds, on behalf
of Pilgrim Strategic Income 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
<PAGE>
ING INTERNATIONAL BOND FUND
(a series of ING Funds Trust)
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS ON __________ __, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoint(s) _______________ and ______________ or any one
or more of them, proxies, with full power of substitution, to vote all shares of
the ING International Bond Fund (the "Fund"), a series of ING Funds Trust, 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 7337 E. Doubletree Ranch Road,
Scottsdale, Arizona 85258 on __________ __, 2000 at ______ [a.m./p.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 Class A, Class B and Class C shares of ING
International Bond Fund by Pilgrim Strategic Income Fund in exchange for Class
A, Class B and Class C shares of beneficial interest of Pilgrim Strategic Income
Fund, respectively, and the assumption by Pilgrim Strategic Income Fund of all
of the liabilities of ING International Bond Fund.
For [ ] Against [ ] Abstain [ ]
This proxy must be signed exactly as your name(s) appears hereon. If as an
attorney, executor, guardian or in some representative capacity or as an officer
of a corporation, please add titles as such. Joint owners must each sign.
---------------------------------- --------------------------------
Signature Date
---------------------------------- --------------------------------
Signature (if held jointly) Date
