As filed with the Securities and Exchange Commission on November 30, 2000
Securities Act File No. 002-34452
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
PILGRIM MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
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 Agent for Service)
With Copy to:
Jeffrey S. Puretz
Dechert
1775 Eye Street, NW
Washington, DC 20006
------------------------
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
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It is proposed that this filing will become effective on
December 30, 2000 pursuant to Rule 488 under the Securities Act of 1933.
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No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended.
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<PAGE>
Pilgrim High Total Return Fund
Pilgrim High Total Return Fund II
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
(800) 992-0180
_____________, 2000
Dear Shareholder:
Your Board of Trustees has called a Special Meeting of Shareholders of the
Pilgrim High Total Return Fund ("High Total Return Fund") and the Pilgrim High
Total Return Fund II ("High Total Return Fund II, as applicable, each scheduled
to be held at _______ [a.m./p.m.], local time, on ___________, 2001 at 7337 E.
Doubletree Ranch Road, Scottsdale, Arizona 85258.
The Board of Trustees has approved a reorganization of each of the High Total
Return Fund and the High Total Return Fund II into the Pilgrim High Yield Fund
II ("High Yield Fund II"), which is managed by ING Pilgrim Investments, Inc. and
is part of the Pilgrim Funds (collectively, the "Reorganizations"). If approved
by shareholders, you would become a shareholder of High Yield Fund II on the
date that the Reorganizations occur. The High Yield Fund II has investment
objectives and policies that are similar in many respects to those of the High
Total Return Fund and the High Total Return Fund II, and the Reorganizations are
expected to result in operating expenses that are lower for shareholders.
You are being asked to vote to approve Agreements and Plans of Reorganization.
The accompanying documents describe the proposed transactions and compare the
policies and expenses of each of the funds for your evaluation.
After careful consideration, the Board of Trustees of Pilgrim Mayflower Trust,
on behalf of the High Total Return Fund and the High Total Return Fund II,
unanimously approved this proposal and recommended shareholders vote "FOR" the
proposal.
A Proxy Statement/Prospectus that describes the Reorganizations is enclosed. We
hope that you can attend the 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 __________, 2001.
The High Total Return Fund and the High Total Return Fund II are using
Shareholder Communications Corporation, a professional proxy solicitation firm,
to assist shareholders in the voting process. As the date of the meeting
approaches, if we have not already heard from you, you may receive a telephone
call from Shareholder Communications Corporation reminding you to exercise your
right to vote.
We appreciate your participation and prompt response in this matter and thank
you for your continued support.
Sincerely,
Robert W. Stallings,
President
<PAGE>
Pilgrim High Total Return Fund
Pilgrim High Total Return Fund II
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
(800) 992-0180
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
PILGRIM HIGH TOTAL RETURN FUND
PILGRIM HIGH TOTAL RETURN FUND II
Scheduled for ___________, 2001
To the Shareholders:
A Special Meeting of Shareholders ("Special Meeting") of both the Pilgrim
High Total Return Fund and the Pilgrim High Total Return Fund II is scheduled
for _________, 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. PILGRIM HIGH TOTAL RETURN FUND ONLY. To approve an Agreement and Plan of
Reorganization providing for the acquisition of all of the assets and
liabilities of the Pilgrim High Total Return Fund by the Pilgrim High Yield
Fund II.
2. PILGRIM HIGH TOTAL RETURN FUND II ONLY. To approve an Agreement and Plan of
Reorganization providing for the acquisition of all of the assets and
liabilities of the Pilgrim High Total Return Fund II by the Pilgrim High
Yield Fund II; and
3. BOTH FUNDS. 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 ___________, 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................................................................... 2
Comparison of Investment Objectives and Strategies..................... 3
Comparison of Portfolio Characteristics................................ 6
Relative Performance................................................... 8
Comparison of Investment Techniques and Risks of the Funds............. 8
COMPARISON OF FEES AND EXPENSES........................................... 11
Annual Fund Operating Expenses......................................... 12
General Information.................................................... 14
ADDITIONAL INFORMATION ABOUT HIGH YIELD FUND II........................... 15
Investment Personnel................................................... 15
Performance of the High Yield Fund II.................................. 16
INFORMATION ABOUT THE REORGANIZATIONS..................................... 17
ADDITIONAL INFORMATION ABOUT THE FUNDS.................................... 20
GENERAL INFORMATION ABOUT THE PROXY STATEMENT............................. 21
Solicitation of Proxies................................................ 21
Voting Rights.......................................................... 21
Other Matters to Come Before the Meeting............................... 22
Shareholder Proposals.................................................. 22
Reports to Shareholders................................................ 22
APPENDIX A................................................................ A-1
APPENDIX B................................................................ B-1
APPENDIX C................................................................ C-1
APPENDIX D................................................................ D-1
APPENDIX E................................................................ E-1
APPENDIX F................................................................ F-1
-i-
<PAGE>
PROXY STATEMENT/PROSPECTUS
Special Meeting of Shareholders Scheduled For
_________________, 2001
PILGRIM HIGH TOTAL RETURN FUND
(a series of Pilgrim Mayflower Trust)
and the
PILGRIM HIGH TOTAL RETURN FUND II
(a series of Pilgrim Mayflower Trust)
Relating to the Reorganizations into
PILGRIM HIGH YIELD FUND II
(a series of Pilgrim Mutual Funds)
(collectively, the "Funds," each a "Fund)
INTRODUCTION
This Proxy Statement/Prospectus provides you with information about
proposed transactions. These transactions involve the transfer of all the assets
and liabilities of the Pilgrim High Total Return Fund ("High Total Return Fund")
and the Pilgrim High Total Return Fund II ("High Total Return Fund II") (each a
"Disappearing Fund," collectively, the "Disappearing Funds") to the Pilgrim High
Yield Fund II ("High Yield Fund II") in exchange for shares of the High Yield
Fund II (each a "Reorganization," collectively, the "Reorganizations"). Each
Disappearing Fund would then distribute to its shareholders their portion of the
shares of the High Yield Fund II it receives in the Reorganizations. The result
would be a liquidation of each of the Disappearing Funds. You would receive
shares of the High Yield Fund II having an aggregate value equal to the
aggregate value of the shares you held of the High Total Return Fund and/or the
High Total Return Fund II, as applicable, as of the close of business on the
business day of the closing of the Reorganizations. You are being asked to vote
on Agreements and Plans of Reorganization through which the transactions
applicable to the Disappearing Fund(s) of which you are a shareholder would be
accomplished.
Because you, as a shareholder of one or both of the Disappearing Funds, are
being asked to approve transactions that will result in your holding of shares
of the High Yield Fund II, this Proxy Statement also serves as a Prospectus for
the High Yield Fund II.
This Proxy Statement/Prospectus, which you should retain for future
reference, contains important information about the High Yield Fund II that you
should know before investing. For a more detailed discussion of the investment
objectives, policies, restrictions and risks of each of the Funds, see the
Prospectus (the "Pilgrim Prospectus") and the Statement of Additional
Information for the Pilgrim Funds dated November 1, 2000, which may be obtained,
without charge, by calling (800) 992-0180. Each of the Funds also provides
periodic reports to its shareholders which highlight certain important
information about the Funds, including investment results and financial
information. The annual report for the High Yield Fund II dated June 30, 2000,
is incorporated herein by reference. You may receive a copy of the most recent
annual report for any of the Funds and a copy of any more recent semi-annual
report, without charge, by calling (800) 992-0180.
You may also obtain proxy materials, reports and other information filed by
the High Yield Fund II from the Securities and Exchange Commission's ("SEC")
Public Reference Room (1-800-SEC-0330) or from the SEC's internet website at
www.sec.gov.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES, OR DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
SUMMARY
You should read this entire Proxy Statement/Prospectus carefully. For
additional information, you should consult the Pilgrim Prospectus, and the
Agreements and Plans of Reorganization, which are attached hereto as Appendix B
and Appendix C.
THE PROPOSED REORGANIZATIONS. On November 2, 2000, the Board of Trustees of
High Total Return Fund and the High Total Return Fund II, each approved an
Agreement and Plan of Reorganization (each a "Reorganization Agreement,"
collectively, the "Reorganization Agreements"). Subject to shareholder approval,
each Reorganization Agreement provides for:
* the transfer of all of the assets of the Disappearing Fund to the High
Yield Fund II, in exchange for shares of the High Yield Fund II;
* the assumption by the High Yield Fund II of all of the liabilities of the
applicable Disappearing Fund;
* the distribution of High Yield Fund II shares to the shareholders of the
applicable Disappearing Fund; and
* the complete liquidation of the applicable Disappearing Fund.
The Reorganizations are expected to be effective upon the opening of
business on ___________, 2001, or on a later date as the parties may agree (the
"Closing"). As a result of the Reorganizations, each shareholder of Class A,
Class B and Class C shares of the Disappearing Funds, would become a shareholder
of the same Class of the High Yield Fund II. Each shareholder would hold,
immediately after the Closing, shares of each Class of the High Yield Fund II
having an aggregate value equal to the aggregate value of the shares of that
same Class of the High Total Return Fund and/or the High Total Return Fund II
held by that shareholder as of the close of business on the business day of the
Closing.
The Reorganizations are two of many reorganizations that are proposed among
various Pilgrim funds. The Pilgrim funds complex has grown in recent years
through the addition of many funds. Management of the Pilgrim funds has proposed
the consolidation of a number of Pilgrim funds that they believe have similar or
compatible investment policies. The proposed reorganizations are designed to
reduce the overlap in funds in the complex, thereby eliminating duplication of
costs and other inefficiencies arising from having similar portfolios within the
same fund group. ING Pilgrim Investments, Inc. ("ING Pilgrim Investments") also
believes 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.
Information comparing the Funds follows. A few important points to note
are:
* The Funds have similar investment objectives and policies. High Yield Fund
II seeks a high level of current income and capital growth, and the
investment objectives of the Disappearing Funds are high income and capital
appreciation. Each Fund seeks to achieve its investment objectives by
investing primarily in high yield debt securities.
2
<PAGE>
* The proposed Reorganizations are expected to result in a reduction in net
operating expenses for shareholders of the Disappearing Funds. For example,
the operating expenses, expressed as a percentage of net asset value per
share for Class A shares, are as follows:
* Expenses of the High Total Return Fund (based on the 12 month period
ended June 30, 2000)(1): 1.28%
* Expenses of the High Total Return Fund II (based on the 12 month
period ended June 30, 2000)(1): 1.29%
* Expenses of the High Yield Fund II before expense reimbursements
(based on the 12 month period ended June 30, 2000): 1.39%
* Expenses of the High Yield Fund II after expense reimbursements (based
on the 12 month period ended June 30, 2000): 1.18%
* Projected expenses of the High Yield Fund II before expense
reimbursements after the Reorganization (PRO FORMA)(1): 1.23%
* Projected expenses of the High Yield Fund II after expense
reimbursements after the Reorganization (PRO FORMA)(1): 1.18%
(1) Reflects contractual agreements effective July 26, 2000 to lower the
advisory fees of each Disappearing Fund to 0.60% from a maximum rate
of 0.75% for the period that the current advisory agreement is in
effect.
Approval of each Reorganization Agreement requires the affirmative vote of
a majority of the outstanding shares of the applicable Disappearing Fund.
AFTER CAREFUL CONSIDERATION, THE BOARD OF TRUSTEES OF HIGH TOTAL RETURN
FUND AND HIGH TOTAL RETURN FUND II EACH UNANIMOUSLY APPROVED THE PROPOSED
REORGANIZATIONS. THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED
REORGANIZATIONS.
COMPARISON OF INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
HIGH TOTAL RETURN FUND HIGH TOTAL RETURN FUND II HIGH YIELD FUND II
---------------------- ------------------------- ------------------
<S> <C> <C> <C>
INVESTMENT OBJECTIVE Seeks high income and Seeks high income and Seeks high level of
capital appreciation. capital appreciation. current income and
capital growth.
PRIMARY INVESTMENT * Normally invests at * Normally invests at * Normally invests at
STRATEGIES least 65% of its least 65% of its least 65% of its
total assets in high total assets in high total assets in high
yield/high risk, yield/high risk, yield/high risk,
lower rated U.S. lower rated U.S. lower rated debt
dollar-denominated dollar-denominated securities ("junk
debt securities debt securities bonds") and below
("junk bonds") of ("junk bonds") of investment grade
any maturity of U.S. any maturity of U.S. convertible
and foreign issuers. and foreign issuers. securities.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
* May invest up to 35% * May invest up to 35% * May invest up to 35%
of its total assets of its total assets of its total assets
in securities in securities in equity securities
denominated in denominated in of U.S. and foreign
foreign currencies foreign currencies companies, including
and up to 50% of its and up to 50% of its securities of
assets in securities assets in securities companies in
of foreign issuers, of foreign issuers, emerging markets.
including 35% in including 35% in
emerging market emerging market
debt. debt.
* Can invest up to * Can invest up to * Not restricted to
10%, and can hold up 10%, and can hold up investments in
to 25%, of its to 25%, of its companies of any
assets in securities assets in securities particular size, but
rated below Caa by rated below Caa by currently intends to
Moody's Investor Moody's Investor invest principally
Services, Inc. Services, Inc. in companies with
("Moody's") or CCC ("Moody's") or CCC market
by Standard & Poor's by Standard & Poor's capitalization above
Rating Services Rating Services $100 million, at the
("S&P"). Also may ("S&P"). Also may time of purchase.
hold debt securities hold debt securities
that pay fixed, that pay fixed,
floating or floating or
adjustable interest adjustable interest
rates and may hold rates and may hold
pay-in-kind pay-in-kind
securities and securities and
discount discount
obligations, obligations,
including zero including zero
coupon securities, coupon securities,
and mortgage-related and mortgage-related
or asset-backed debt or asset-backed debt
securities. securities.
* May also invest in * May also invest in * May also use
equity or equity or options, forwards,
equity-related equity-related futures contracts
securities, such as securities, such as and interest rate
common stock, common stock, and currency swaps
preferred stock, preferred stock, as hedging
convertible convertible techniques or to
securities and securities and help seek the Fund's
rights and warrants rights and warrants investment
attached to debt attached to debt objectives.
instruments. instruments.
* In selecting equity * In selecting equity * In selecting equity
securities, uses a securities, uses a securities, uses a
"bottom-up" analysis "bottom-up" analysis "bottom-up" analysis
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
that focuses on that focuses on that focuses on
individual companies individual companies individual companies
and assesses the and assesses the and assesses the
company's valuation, company's valuation, company's valuation,
financial condition, financial condition, financial condition,
management, management, management,
competitiveness, and competitiveness, and competitiveness, and
other factors. other factors. other factors.
INVESTMENT ADVISER ING Pilgrim Investments** ING Pilgrim Investments** ING Pilgrim Investments*
PORTFOLIO MANAGERS Edwin Schriver, Andy Edwin Schriver, Andy Edwin Schriver, Andy
Mitchell and Russ Mitchell and Russ Mitchell and Russ
Stiver*** Stiver*** Stiver***
</TABLE>
----------
* Prior to May 24, 1999, High Yield Fund II was managed by another investment
adviser.
** Prior to April 30, 2000, the Disappearing Funds were managed by Pilgrim
Advisors, Inc., formerly called Northstar Investment Management
Corporation, which became affiliated with Pilgrim Investments in October,
1999, and merged into Pilgrim Investments on April 30, 2000.
*** Prior to October 2000, the Funds were managed by a different portfolio
management team.
As you can see from the chart above, the investment objectives and
strategies of the Funds are similar.
5
<PAGE>
COMPARISON OF PORTFOLIO CHARACTERISTICS
The following table compares certain characteristics of the portfolios of
the Funds as of June 30, 2000.
<TABLE>
<CAPTION>
HIGH TOTAL
HIGH TOTAL RETURN HIGH YIELD
RETURN FUND FUND II FUND II
----------- ------- -------
<S> <C> <C> <C>
Net Assets $215,802,518 $84,521,616 $199,209,051
Number of Holdings 95 76 78
Average Credit Quality B B B
Average Remaining Maturity of
High Yield Securities 7.46 years 7.71 years 7.36 years
Portfolio Turnover Rate
(12 months ended 6/30/00) 68.00% 60.66% 113.00%
As a percentage of net assets:
Investment Grade Debt Securities 0.00% 0.00% 0.00%
High Yield Debt Securities 83.34% 82.88% 85.20%
Holdings in debt where offering
was $100 million or more 55.43% 64.79% 74.30%
Holdings in debt where offering
was less than $100 million 27.91% 18.09% 10.90%
Convertible Securities 1.33% 1.50% 0.00%
Foreign Securities 7.13% 4.38% 12.30%
Emerging Markets Debt 0.00% 0.00% 0.00%
Zero Coupon Bonds 0.00% 0.00% 0.00%
Equity Securities 7.76% 7.98% 4.94%
Short-Term Investments 7.02% 7.97% 10.79%
Top 5 Industries Cable and DBS - 13.04% Communications - Communication -
(as a % of net asset) Communications - 19.09% Wireline - 16.15% Wireline - 22.09%
Broadcasting, Radio & Cable and DBS - 18.06% Cable & DBS - 11.23%
Television - 10.25% Communications - Communications -
Food, Beverage and Wireless - 11.98% Wireless - 9.00%
Tobacco - 8.86% Food, Beverage and Communications -
Communications - Tobacco - 11.77% Internet - 8.15%
Internet - 7.33% Communications - Food, Beverage,
Internet - 6.13% Tobacco - 6.81%
Top 10 Holdings North Atlantic Trading Inc. Nextel Communications, Nextel Communications,
(as a % of net assets) - 6.48% Inc. - 5.30% Inc. - 2.78%
Paxson Communications Corp. Charter Communications Versatel Telecommunications
- 4.81% Hldg. - 4.43% Int'l - 2.48%
Hurricane Hydrocarbons - Crown Castle Int'l ICG Services, Inc. - 2.37%
3.58% Corp. - 4.34% Charter Communications
NTL Communications Corp. - Fage Dairy Ind. SA - 4.09% Hldg. - 2.30%
3.34% North Atlantic Trading, Fleming COS, Inc. - 2.26%
Nextel Communications, Inc. Inc. - 3.91% Fage Dairy Ind. SA - 2.24%
- 3.31% Northeast Optic - 3.45% Simmons Co. - 2.24%
Capstar Broadcasting Part, NTL, Inc. - 3.12% Echostar Dbs Corp. - 2.21%
Inc. - 3.25% Star Choice Penn National Gaming,
Intracel - 2.92% Communications - 3.09% Inc. - 2.19%
Charter Communications NTL Communications Alamosa Hldg. Inc. - 2.11%
Hldgs. - 2.69% Corp. - 3.06%
Toms Foods, Inc. - 2.58% Intracel - 2.56%
Hollywood Casino
Shreveport - 2.52%
</TABLE>
6
<PAGE>
The following table compares the credit rating of the securities held
by the Funds. Generally, the lower the rating, the greater the credit risk
presented by an instrument (CC is the lowest rating shown and A is the highest).
Normally, lower rated securities pay higher rates of interest. For the dates
December 31, 1999 and June 30, 2000, the average weighted percentage of each
Fund's assets invested in securities with the following ratings (based on
month-end holdings) were as follows:
<TABLE>
<CAPTION>
HIGH TOTAL RETURN FUND HIGH TOTAL RETURN FUND II HIGH YIELD FUND II
---------------------- ------------------------- -------------------
S&P RATING 12/31/99 6/30/00 12/31/99 6/30/00 12/31/99 6/30/00
---------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
A Rated -- -- -- -- -- --
BBB Rated -- -- -- -- -- --
BB Rated 7.39% 6.19% 11.17% 6.35% 7.22% 11.30%
B Rated 44.80% 57.86% 64.37% 60.30% 71.82% 72.12%
CCC Rated 12.79% 6.74% 4.69% 8.24% 15.24% 8.54%
CC Rated -- -- -- -- -- --
Unrated 35.02% 29.21% 19.77% 25.11% 5.72% 8.04%
</TABLE>
RELATIVE PERFORMANCE
The following table shows, for each calendar year since 1994 and the period
January 1, 2000 to September 30, 2000, the average annual total return for: (a)
Class A shares of the High Total Return Fund; (b) Class A shares of the High
Total Return Fund II; (c) Class A shares of the High Yield Fund II; (d) the
Lehman Brothers High Yield Bond Index; and (e) the First Boston High Yield
Index. Performance of the Funds in the table does not reflect the deduction of
sales loads, and would be lower if they 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.
<TABLE>
<CAPTION>
LEHMAN
CALENDAR HIGH TOTAL HIGH TOTAL BROTHERS HIGH FIRST BOSTON
YEAR/PERIOD RETURN RETURN HIGH YIELD YIELD BOND HIGH YIELD
ENDED FUND(2) FUND II(3) FUND II(4) INDEX(5) INDEX(6)
----- ------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
12/31/94 -8.57% N/A N/A -1.01% -0.98%
12/31/95 21.17% N/A N/A 19.17% 17.39%
12/31/96 15.70% N/A N/A 11.35% 12.42%
12/31/97 11.44% N/A 21.05% 12.77% 12.63%
12/31/98 -7.96% -2.93% 4.17% 1.87% 0.58%
12/31/99 -13.23% -13.86% 6.12% 2.39% 3.28%
1/1/00-9/30/00 (1) -5.67% -7.37% -1.59% -0.65% -0.16%
</TABLE>
7
<PAGE>
----------
(1) Not annualized.
(2) Prior to April 30, 2000, the High Total Return Fund was managed by Pilgrim
Advisors, Inc., formerly called Northstar Investment Management
Corporation, which became affiliated with Pilgrim Investments in October,
1999, and which merged with Pilgrim Investments on April 30, 2000.
(3) The High Total Return Fund II commenced operations on January 31, 1997.
Prior to April 30, 2000, the High Total Return Fund II Fund was managed by
Pilgrim Advisors, Inc., formerly called Northstar Investment Management
Corporation, which became affiliated with Pilgrim Investments in October,
1999, and which merged with Pilgrim Investments on April 30, 2000.
(4) Institutional Class shares of the High Yield Fund II commenced operations
on July 31, 1996. Classes A, B and C commenced operations on March 27,
1998. The figures shown for the years 1997 and 1998 provide performance for
the Institutional Class shares of the Fund, revised to reflect the higher
expenses of Class A shares. Prior to May 24, 1999, a different adviser
managed the High Yield Fund II.
(5) The Lehman Brothers High Yield Bond Index is an unmanaged index that
measures the performance of fixed-income securities that are similar, but
not identical, to those in the Disappearing Funds' portfolios.
(6) The First Boston High Yield Index is an unmanaged index that measures the
performance of fixed-income securities that are similar, but not identical,
to those in the High Yield Fund II's portfolio.
NOTE: CHANGE IN PORTFOLIO MANAGEMENT FOR ALL THE FUNDS: Effective October
2000, Edwin Schriver, Andy Mitchell and Russ Stiver assumed the day-to-day
management of each of the Funds. Prior to that date, a different portfolio
management team had been in place.
COMPARISON OF INVESTMENT TECHNIQUES AND RISKS OF THE FUNDS
Because the Funds have investment objectives and policies that are similar
in many respects, many of the risks of investing in the High Yield Fund II are
similar to the risks of investing in the Disappearing Funds. A principal risk of
an investment in any 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 such
fluctuations.
The following is a summary of the types of securities in which the Funds
may invest and strategies the Funds may employ in pursuit of their investment
objectives. As with any security, an investment in a Fund's shares involves
certain risks, including loss of principal. The Funds are subject to varying
degrees of financial, market and credit risk.
8
<PAGE>
HIGH YIELD SECURITIES. Each Fund invests principally in high yield/high
risk, lower-rated securities (sometimes referred to as "junk bonds").
Investments in high yield securities generally provide greater income and
increased opportunity for capital appreciation than investments in investment
grade debt securities, but they also typically entail greater potential for
price volatility and principal and income risk. High yield securities are not
considered investment grade and are regarded as predominantly speculative with
respect to the issuing company's continuing ability to meet principal and
interest payments.
High yield bonds carry particular market risks and may experience greater
volatility in market value than investment grade bonds. Changes in interest
rates, the market's perception of issuers and the credit worthiness of issuers
may significantly affect the value of the bonds. Some of these securities may
have a structure that makes their reactions to interest rates and other factors
difficult to predict, causing their value to be highly volatile. Certain high
yield bonds, such as zero coupon, deferred interest and payment-in-kind bonds,
may be issued at deep discounts and may experience greater volatility in market
value. The secondary market for high yield bonds may be less liquid than the
markets for higher quality securities and this may have an adverse effect on the
market values of certain securities.
CREDIT RISK. Each Fund is subject to credit risk. The Funds could lose
money if the issuer of a debt security is unable to meet its financial
obligations or goes bankrupt. The Funds may be subject to more credit risk than
other income mutual funds because they invest in high yield debt securities,
which are considered predominantly speculative with respect to the issuer's
continuing ability to meet interest and principal payments. This is especially
true during periods of economic uncertainty or economic downturns. Additionally,
an issuer of a security may have a credit downgrade, which would negatively
affect the price of the security. Securities with lower credit ratings are
generally subject to greater fluctuations in value than are higher rated
securities.
CHANGES IN INTEREST RATES. Because each Fund invests in debt securities,
the value of the Funds' investments may fall when interest rates rise. The Funds
may be sensitive to changes in interest rates because they invest in debt
securities with various maturities and durations. Generally, debt securities
with longer durations tend to be more sensitive to changes in interest rates.
PREPAYMENT RISK. Each Fund is subject to prepayment risk. The Funds may be
sensitive to this risk because an issuer of a security may prepay principal
earlier than scheduled, which could force the Fund to reinvest in lower yielding
securities.
EXTENSION RISK. Because each Fund invests in debt securities, each may be
subject to extension risk. Slower than expected principal payments on a
mortgage-backed or asset backed security may extend that security's life,
thereby locking in a below-market interest rate, increasing the security's
duration and reducing the value of the security
INABILITY TO SELL SECURITIES. Each Fund may have some difficulty selling
its portfolio securities, as high yield securities may be less liquid than
higher quality investments. The Funds could lose money if they cannot sell a
security at the time and price that would be most beneficial to the Fund. A
security in the lowest rating categories, that is unrated or whose credit rating
has been lowered may be particularly difficult to sell. Valuing less liquid
securities involves greater exercise of judgement and may be more subjective
than valuing securities using market quotes.
9
<PAGE>
EQUITY SECURITIES. Each Fund is subject to risks associated with investing
in equity securities, including market risks, issuer risk (including credit
risks), price volatility risks, and market trend risks. Market risk is the risk
that securities may decline in value due to factors affecting securities markets
generally or particular industries. Issuer risk is the risk that the value of a
security may decline for reasons relating to the issuer, such as changes in the
financial condition of the issuer. Credit risk is the risk that an issuer may
not be able to meet its financial obligations when due, including payments on
outstanding debt. Market trend risk is the risk that the market may not favor
the investment approach followed by each Fund, or may not favor equities at all.
While equities may offer the potential for greater long-term growth than most
debt securities, they generally have higher volatility.
FOREIGN SECURITIES. The High Yield Fund II may invest in high yield debt
securities of both U.S. and foreign issuers. The High Yield Fund II may also
invest up to 35% of its total assets in equity securities of U.S. and foreign
issuers. The foreign issuers may be emerging countries. Each Disappearing Fund
may invest up to 35% of its total assets in securities denominated in foreign
currencies and up to 50% of its assets in securities of foreign issuers,
including 35% of its assets in emerging market debt.
Foreign investments may be riskier than U.S. investments for many reasons.
There are certain risks in owning foreign securities, including those resulting
from: (i) fluctuations in currency exchange rates; (ii) devaluation of
currencies; (iii) political or economic developmental laws or restrictions; (iv)
reduced availability of public information concerning issuers; (v) accounting,
auditing and financial reporting standards or other regulatory practices and
requirements that are not uniform when compared to those applicable to domestic
companies; and (vi) limitations on foreign ownership of equity securities. Also,
securities of many foreign companies may be less liquid and the prices more
volatile than those of domestic companies. With certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Funds,
including the withholding of dividends.
RISKS OF EMERGING MARKET INVESTMENTS. Because of less developed markets and
economies and, in some countries, less mature governments and governmental
institutions, the risks of investing in foreign securities can be intensified in
the case of investments in issuers domiciled or doing substantial business in
emerging market countries. These risks include: high concentration of market
capitalization and trading volume in a small number of issuers representing a
limited number of industries, as well as a high concentration of investors and
financial intermediaries; political and social uncertainties; over-dependence on
exports, especially with respect to primary commodities, making these economies
vulnerable to changes in commodity prices; overburdened infrastructure and
obsolete or unseasonal financial systems; environmental problems; less well
developed legal systems; and less reliable custodial services and settlement
practices.
RESTRICTED AND ILLIQUID SECURITIES. The High Yield Fund II may invest up to
15% of its net assets in illiquid securities, but has no percentage limit on
restricted securities that are liquid. Each Disappearing Fund has a similar
restriction. Generally, a security is considered illiquid if it cannot be
disposed of within seven days at approximately the value at which it is carried.
Illiquidity might prevent the sale of the security at a time when the adviser
might wish to sell, and these securities could have the effect of decreasing the
overall level of a Fund's liability. Further, the lack of an established
secondary market may make it more difficult to value illiquid securities.
10
<PAGE>
Restricted securities, including private placements, are subject to legal
or contractual restrictions on resale. Restricted securities can be eligible for
purchase without registration with the SEC by certain institutional investors
known as "qualified institutional buyers" and could be treated as liquid.
Restricted securities that are treated as liquid could be less liquid than
registered securities traded on established secondary markets.
USE OF DERIVATIVES. Generally, derivatives are financial instruments whose
performance is derived, at least in part, from the performance of an underlying
asset or assets. The Funds may use options, futures contracts and interest rate
and currency swaps as hedging techniques. Mortgage-backed securities in which
the Funds may invest may be considered to be derivatives.
A risk of using financial futures contracts for hedging purposes is that
the adviser might imperfectly judge the market's direction, so that the hedge
might not correlate to the market's movements and may be ineffective.
Furthermore, if a Fund buys a futures contract to gain exposure to securities,
the Fund is exposed to the risk of change in the value of the underlying
securities and the futures contracts.
CHANGE IN PORTFOLIO MANAGEMENT. The High Yield Fund II underwent a change
in portfolio management in October 2000, at which time Edwin Schriver, Andy
Mitchell and Andy Stiver assumed responsibility for the day-to-day management of
the High Yield Fund II. Shareholders bear the risk that the new portfolio
managers will not be able to sustain the High Yield Fund II's historical
relative performance.
COMPARISON OF FEES AND EXPENSES
The following describes and compares the fees and expenses of the Funds.
For further information on the fees and expenses of the High Yield Fund II, see
"Appendix D: Additional Information Regarding the Pilgrim High Yield Fund II."
TOTAL OPERATING EXPENSES. The operating expenses of Class A of the High
Yield Fund II, expressed as a ratio of expenses to average daily net assets
("expense ratio"), are lower than those of the Disappearing Funds, after giving
effect to the expense limitation agreement for the High Yield Fund II described
below. For the 12 month period ending June 30, 2000, the expenses for Class A
and Class B of the High Yield Fund II were 1.18% and 1.82%, respectively, lower
than those of the same Classes of the High Total Return Fund and the High Total
Return Fund II, after giving effect to the expense limitation agreement. Without
the expense limitation agreement, the operating expenses of Classes A and B of
Pilgrim High Yield II would have been higher than those of the other Funds.
Because Class C shares are new for High Yield Fund II, its estimated expenses
are based on Class B expenses.
EXPENSE LIMITATION ARRANGEMENTS. Expense limitation arrangements are in
place for Pilgrim High Yield Fund II. Under the terms of the expense limitation
agreement, ING Pilgrim Investments has agreed to limit the expenses of the Fund,
excluding interest, taxes, brokerage and extraordinary expenses, subject to
possible recoupment by ING Pilgrim Investments within three years. The current
expense limitation agreement for the High Yield Fund II provides that it will
remain in effect through at least October 31, 2001. There can be no assurance
that the expense limitation agreements will be continued after that date. There
are no expense limitation agreements in place for the Disappearing Funds;
however, the net expense ratios for the Disappearing Funds reflect contractual
11
<PAGE>
agreements effective July 26, 2000, to lower the advisory fee from maximum rates
of 0.75% to 0.60% for the period that the current advisory agreement between the
Disappearing Funds and ING Pilgrim Investments is in effect. There is no
assurance that the agreement to lower expenses will be continued after that
date. The expense limitations for Classes A, B and C shares of High Yield Fund
II are 1.10%, 1.75% and 1.75%, respectively. This information and similar
information is shown in the table below entitled "Annual Fund Operating
Expenses."
It is expected that the expense ratios of Pilgrim High Yield Fund II after
the Reorganizations will be 1.23%, 1.88% and 1.88%, for Classes A, B and C,
respectively, without taking into account any expense subsidies from management
and extraordinary expenses.
MANAGEMENT FEE. The High Yield Fund II pays a management fee of 0.60% of
the Fund's average daily net assets; the High Total Return Fund pays a
management fee of 0.60% on the first $1 billion, then 0.55% on the excess over
$1 billion; and the High Total Return Fund II pays a management fee of 0.60%
pursuant to the July 26, 2000 contractual agreements.
DISTRIBUTION AND SERVICE FEES. The distribution (12b-1) and service fees of
Classes B and C of the Disappearing Funds are the same as those of the High
Yield Fund II, and the distribution (12b-1) fees for Class A shares of the High
Yield Fund II are 0.05% higher than those of the Disappearing Funds.
EXPENSE TABLE. The current expenses of each of the Funds and estimated pro
forma expenses giving effect to the proposed Reorganizations are shown in the
following table. Expenses for the Funds are based upon the operating expenses
incurred by Classes A, B and C for the twelve month period ended June 30, 2000.
Pro forma fees show estimated fees of the High Yield Fund II after giving effect
to the proposed Reorganization. Pro forma numbers are estimated in good faith
and are hypothetical, and are adjusted for anticipated contractual changes.
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(3) EXPENSES
---- ------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
High Total Return Fund 0.60% 0.30% 0.38% 1.28% -- 1.28%
High Total Return Fund II 0.60% 0.30% 0.39% 1.29% -- 1.29%
High Yield Fund II 0.60% 0.35% 0.44% 1.39% -0.21% 1.18%
High Yield Fund II after
Reorganization (PRO FORMA) 0.60% 0.35% 0.28% 1.23% -0.05% 1.18%
CLASS B
High Total Return Fund 0.60% 1.00% 0.38% 1.98% -- 1.98%
High Total Return Fund II 0.60% 1.00% 0.39% 1.99% -- 1.99%
High Yield Fund II 0.60% 1.00% 0.44% 2.04% -0.21% 1.83%
High Yield Fund II after
Reorganization (PRO FORMA) 0.60% 1.00% 0.28% 1.88% -0.05% 1.83%
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION
(12B-1) AND
SHAREHOLDER TOTAL FUND
MANAGEMENT SERVICING OTHER OPERATING FEE WAIVER NET FUND
FEES FEES(2) EXPENSES EXPENSES BY ADVISER(3) EXPENSES
---- ------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS C
High Total Return Fund 0.60% 1.00% 0.38% 1.98% -- 1.98%
High Total Return Fund II 0.60% 1.00% 0.39% 1.99% -- 1.99%
High Yield Fund II 0.60% 1.00% 0.44% 2.04% -0.21% 1.83%
High Yield Fund II after
Reorganization (PRO FORMA) 0.60% 1.00% 0.28% 1.88% -0.05% 1.83%
</TABLE>
----------
(1) The fiscal year end for the Disappearing Funds is October 31. The fiscal
year end for the High Yield Fund II is June 30. Expenses of the Funds are
estimated based upon expenses incurred by each Fund for the 12 month period
ended June 30, 2000, except, for the Disappearing Funds, the management
fees shown reflect a contractual agreement effective July 26, 2000, to
lower advisory fees of High Total Return Fund and High Total Return Fund II
to 0.60% from a maximum rate of 0.75% for the period that the current
advisory agreement is in effect. PRO FORMA expenses are adjusted for
anticipated 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) ING Pilgrim Investments has entered into an expense limitation agreement
with High Yield Fund II under which it will limit expenses of the Fund
(excluding interest, taxes, brokerage and extraordinary expenses) to 1.10%,
1.75% and 1.75% for Classes A, B and C, respectively. ING Pilgrim
Investments has agreed that the expense limitations shown in the table will
apply to Pilgrim High Yield Fund II until October 31, 2001.
Following the Reorganizations and in the ordinary course of business as a
mutual fund, certain holdings of the Disappearing Funds that are transferred to
the High Yield Fund II in connection with the Reorganizations may be sold. Such
sales may result in increased transactional costs for the High Yield Fund II,
and the realization of taxable gains or losses for the High Yield Fund II.
EXAMPLES. The examples are intended to help you compare the cost of
investing in each of the Funds and in the combined Fund on a PRO FORMA basis.
The examples assume that you invest $10,000 in each Fund and in the combined
Fund after the Reorganization for the time periods indicated. 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>
HIGH TOTAL RETURN FUND HIGH TOTAL RETURN FUND II
------------------------------- -------------------------------
1 3 5 10 1 3 5 10
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $599 $862 $1,144 $1,947 $600 $865 $1,149 $1,958
Class B 701 921 1,268 2,126* 702 924 1,273 2,136*
Class C 301 621 1,068 2,306 302 624 1,073 2,317
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
HIGH YIELD FUND II PRO FORMA: THE FUNDS COMBINED
------------------------------- -------------------------------
1 3 5 10 1 3 5 10
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $590 $874 $1,180 $2,047 $590 $842 $1,114 $1,889
Class B 686 919 1,279 2,185* 686 886 1,211 2,027*
Class C 286 619 1,079 2,352 286 586 1,011 2,197
You would pay the following expenses if you did not redeem your shares:
HIGH TOTAL RETURN FUND HIGH TOTAL RETURN FUND II
------------------------------- -------------------------------
1 3 5 10 1 3 5 10
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ---- ----- ----- -----
Class A $599 $862 $1,144 $1,947 $600 $865 $1,149 $1,958
Class B 201 621 1,068 2,126* 202 624 1,073 2,136*
Class C 201 621 1,068 2,306 202 624 1,073 2,317
HIGH YIELD FUND II PRO FORMA: THE FUNDS COMBINED
------------------------------- -------------------------------
1 3 5 10 1 3 5 10
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ---- ----- ----- -----
Class A $590 $874 $1,189 $2,047 $590 $842 $1,114 $1,889
Class B 186 619 1,079 2,185* 186 586 1,011 2,027*
Class C 186 619 1,079 2,352 186 586 1,011 2,197
</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.
GENERAL INFORMATION
Class A, Class B and Class C shares of the High Yield Fund II issued to a
shareholder in connection with the Reorganization will be subject to the same
contingent deferred sales charge, if any, applicable to the corresponding shares
of the High Total Return Fund or the High Total Return Fund II held by that
shareholder immediately prior to the Reorganization.
In addition, the period that the shareholder held shares of the
Disappearing Funds will be included in the holding period of the High Yield Fund
II shares for purposes of calculating any contingent deferred sales charge.
Similarly, Class B shares of the High Yield Fund II 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 the Disappearing Funds were purchased
by the shareholder. Purchases of shares of the High Yield Fund II after the
Reorganization will be subject to the sales load structure described in the
table below. This is the same sales load structure that is currently in effect
for the Disappearing Funds.
14
<PAGE>
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) 4.75%(1) None None
Maximum deferred sales charge (load)
(as a percentage of the lower of original
purchase price or redemption proceeds) None (2) 5.00% (3) 1.00% (4)
----------
(1) Reduced for purchases of $50,000 and over. See "Class A Shares: Initial
Sales Charge Alternative" in Appendix D.
(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 D.
(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 D and "Deferred Sales Charges" in the Pilgrim
Prospectus.
(4) Imposed upon redemptions within 1 year from purchase.
Neither the High Yield Fund II nor the Disappearing Funds have any
redemption fees, exchange fees or sales charges on reinvested dividends.
ADDITIONAL INFORMATION ABOUT HIGH YIELD FUND II
INVESTMENT PERSONNEL
The following individuals share responsibility for the day-to-day
management of the High Yield Fund II:
* Edwin Schriver, Senior Vice President of ING Pilgrim, has served as a
Senior Portfolio Manager of the portfolio management team that manages
High Yield Fund II since October 2000. Prior to joining ING Pilgrim,
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 investment adviser and
held various senior portfolio management positions.
* Andy Mitchell, Vice President of ING Pilgrim, has served as
Co-Portfolio Manager of the portfolio management team that manages
High Yield Fund II since October 2000. Prior to joining ING Pilgrim in
July 2000, Mr. Mitchell was a Senior Credit Analyst with Katonha
Capital since March 2000. From March 1998 to March 2000, Mr. Mitchell
was a Vice President and Senior High Yield Analyst at Merrill Lynch
Asset Management. From March 1994 to March 1998, Mr. Mitchell was
Assistant Vice President and Senior High Yield Analyst at Schroder
Capital Management.
15
<PAGE>
* Russ Stiver, Vice President of ING Pilgrim, has served as Co-Portfolio
Manager of the portfolio management team that manages High Yield Fund
II since October 2000. Prior to joining ING Pilgrim in May 2000, Mr.
Stiver was Portfolio Manager (1996-2000) and Acting V.P. at Manulife
Financial (1999-2000). From 1994 to 1996, Mr. Stiver analyzed
investment grade, high yield and emerging market sovereign debt
securities for Toronto-Dominion Bank.
PERFORMANCE OF THE HIGH YIELD FUND II
The bar chart and table that follow provide an indication of the risks of
investing in the High Yield Fund II by showing (on a calendar year basis)
changes in the Fund's annual total return from year to year and by showing (on a
calendar year basis) how the Fund's average annual returns for one year and
since inception compare to those of the First Boston High Yield Index. The
information in the bar chart is based on the performance of the Class A shares
of the 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. The High Yield Fund II'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)(3)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
21.05% 4.17% 6.12%
----------
(1) During the period shown in the chart, the Fund's best quarterly performance
was up 8.30% for the quarter ended September 30, 1997, and the Fund's worst
quarterly performance was down 7.14% for the quarter ended September 30,
1998.
(2) Prior to May 24, 1999, a different investment adviser managed the Fund. The
Fund's year-to-date return as of September 30, 2000 was -1.59%.
(3) The figures shown for the year 1999 provide performance for Class A shares
of the Fund. The figures shown for the years 1997 and 1998 provide
performance for Institutional Class shares of the Fund, revised to reflect
the higher expenses of Class A shares.
The table below shows what the average annual total returns of the High
Yield Fund II would equal if you averaged out actual performance over various
lengths of time, compared to the First Boston High Yield Index. The First Boston
High Yield Index has inherent performance advantages over the High Yield Fund II
since it has no cash in its portfolio, imposes no sales charges and incurs no
operating expenses. An investor cannot invest directly in an index. The High
Yield Fund II's performance reflected in the table assumes the deduction of the
maximum sales charge in all cases.
16
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS for the periods ended December 31, 1999
SINCE INCEPTION
OF CLASSES
1 YEAR A, B AND C(5)
------ -------------
High Yield Fund II - Class A (1) 1.07% -0.18%
High Yield Fund II - Class B (2) 0.53% -0.06%
High Yield Fund II - Class C (3) 4.38% 1.97%
First Boston High Yield Index(4) 3.28% 0.48%
----------
(1) Reflects deduction of a 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 deferred sales charge of 1% for the 1 year return.
(4) The First Boston High Yield Index is an unmanaged index that measures the
performance of fixed income securities similar, but not identical, to those
in the Fund's portfolio. Index return is for the period beginning March 31,
1998, since inception return.
(5) Classes A, B and C commenced operations on March 27, 1998.
The table below shows the performance of the High Yield Fund II if sales charges
are not reflected.
AVERAGE ANNUAL TOTAL RETURNS for the periods ended December 31, 1999
SINCE INCEPTION
OF CLASSES
1 YEAR A, B AND C
------ ----------
High Yield Fund II - Class A 6.12% 2.58%
High Yield Fund II - Class B 5.53% 3.94%
High Yield Fund II - Class C 5.38% 1.97%
For a discussion by the adviser regarding the performance of High Yield
Fund II for the year ended June 30, 2000, see Appendix A to this Proxy
Statement/Prospectus. Additional information about High Yield Fund II is
included in Appendix D to this Proxy Statement/Prospectus. Additional
information about the Disappearing Funds is included in the Pilgrim Prospectus
dated November 1, 2000.
INFORMATION ABOUT THE REORGANIZATIONS
THE REORGANIZATION AGREEMENTS. The Reorganization Agreements provide for
the transfer of all of the assets and liabilities of the Disappearing Funds to
the High Yield Fund II in exchange for shares of the High Yield Fund II. The
Disappearing Funds will distribute the shares of the High Yield Fund II received
in the exchange to the shareholders of the Disappearing Funds and then each of
the Disappearing Funds will be liquidated.
After the Reorganizations, each shareholder of each of the Disappearing
Funds will own shares in the High Yield Fund II having an aggregate value equal
to the aggregate value of each respective Class of shares in either the High
Total Return Fund or the High Total Return Fund II held by that shareholder as
of the close of business on the business day of the Closing. Shareholders of
each Class of shares of the Disappearing Funds will receive shares of the
corresponding Class of the High Yield Fund II. In the interest of economy and
convenience, shares of the High Yield Fund II generally will not be represented
by physical certificates unless requested in writing.
17
<PAGE>
Until the Closing, shareholders of each of the Disappearing Funds will
continue to be able to redeem their shares. Redemption requests received after
the Closing will be treated as requests received by the High Yield Fund II for
the redemption of its shares received by the shareholder in the Reorganization.
The obligations of the Funds under the Reorganization Agreements are
subject to various conditions, including approval of the shareholders of each of
the Disappearing Funds. The Reorganization Agreements also require that all of
the Funds take, or cause to be taken, all action, and do or cause to be done,
all things reasonably necessary, proper or advisable to consummate and make
effective the transactions contemplated by the Reorganization Agreements. The
Reorganization Agreements may be terminated by mutual agreement of the parties
or on certain other grounds. Please refer to Appendices B and C to review the
terms and conditions of the Reorganization Agreements.
REASONS FOR THE REORGANIZATIONS. The Reorganizations are two of many
reorganizations that are proposed among various Pilgrim funds. The Pilgrim funds
complex has grown in recent years through the addition of many funds. Management
of the Pilgrim funds has proposed the consolidation of a number of the Pilgrim
funds that management believes have similar or compatible investment policies.
The proposed reorganizations are designed to reduce the overlap in funds in the
complex, thereby eliminating duplication of costs and other inefficiencies
arising from having similar portfolios within the same fund group. ING Pilgrim
Investments also believes 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 proposed Reorganizations were presented to the Board of Trustees of the
Pilgrim Mayflower Trust, on behalf of the Disappearing Funds, for consideration
and approval at a meeting held on November 2, 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 the Pilgrim
Mayflower Trust, determined that the interests of the shareholders of the
Disappearing Funds will not be diluted as a result of the proposed
Reorganizations, and that the proposed Reorganizations are in the best interests
of the Disappearing Funds and their shareholders.
The Reorganizations will allow the Disappearing Funds' shareholders to
continue to participate in a professionally-managed portfolio which seeks to
achieve an objective of appreciation or growth of capital and high current
income. As shareholders of the High Yield Fund II, these shareholders will be
able to exchange into other mutual funds in the group of Pilgrim funds and ING
funds that offer the same Class of shares in which such shareholder is currently
invested. A list of the Pilgrim funds and ING funds and Classes available after
the Reorganizations is contained in Appendix F.
BOARD CONSIDERATIONS. The Board of Trustees of Pilgrim Mayflower Trust, on
behalf of the Disappearing Funds, in recommending the proposed transactions,
considered a number of factors, including the following:
(1) the plans of management to reduce overlapping funds in the Pilgrim fund
complex;
(2) expense ratios and information regarding fees and expenses of the
Disappearing Funds and the High Yield Fund II,
(3) estimates that show that combining the Funds is expected to result in a
lower expense ratio because of economies of scale expected to result from
an increase in the asset size of the reorganized fund;
(4) whether the Reorganizations would dilute the interests of the Disappearing
Funds' current shareholders;
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(5) the relative investment performance and risks of the High Yield Fund II as
compared to the Disappearing Funds;
(6) the similarity of the investment objectives, policies and restrictions of
the High Yield Fund II with those of the Disappearing Funds; and
(7) the tax-free nature of the Reorganizations to the Disappearing Funds and
their shareholders.
The Board of Trustees also considered the future potential benefits to ING
Pilgrim Investments in that its costs to limit the expenses of the High Yield
Fund II are likely to be reduced if the Reorganizations are approved.
The Trustees of Pilgrim Mayflower Trust, on behalf of High Total Return
Fund and High Total Return Fund II, recommend that shareholders approve each of
the Reorganizations with the High Yield Fund II.
TAX CONSIDERATIONS. The Reorganizations are intended to qualify for Federal
income tax purposes as tax-free reorganizations under Section 368 of the
Internal Revenue Code of 1986, as amended. Accordingly, pursuant to this
treatment, neither the Disappearing Funds nor their shareholders nor the High
Yield Fund II are expected to recognize any gain or loss for federal income tax
purposes from the transactions contemplated by the Reorganization Agreements. As
a condition to the Closing of the Reorganizations, the Funds will receive an
opinion from the law firm of Dechert to the effect that the Reorganizations will
qualify as tax-free reorganizations for Federal income tax purposes. That
opinion will be based in part upon certain assumptions and upon certain
representations made by the Funds.
Immediately prior to the Reorganizations, each Disappearing Fund will pay a
dividend or dividends which, together with all previous dividends, will have the
effect of distributing to its shareholders all that Disappearing Fund's
investment company taxable income for taxable years ending on or prior to the
Reorganizations (computed without regard to any deduction for dividends paid)
and all of its net capital gain, if any, realized in taxable years ending on or
prior to the Reorganization (after reduction for any available capital loss
carryforward). Such dividends will be included in the taxable income of the
Disappearing Fund's shareholders.
As of October 31, 1999, the High Total Return Fund and High Total Return
Fund II had accumulated capital loss carry forwards of approximately
$105,450,822 and $31,512,402, respectively. As of June 30, 2000, the High Yield
Fund II had accumulated capital loss carryforwards of approximately $53,015,332.
After the Reorganizations, the losses of the High Yield Fund II generally will
be available to the High Yield Fund II to offset its capital gains, although a
portion of the amount of these losses which may offset the High Yield Fund II's
capital gains in any given year will be limited due to previous reorganizations
and to this Reorganization. Also, after the Reorganizations, the losses of the
Disappearing Funds will be available to the High Yield Fund II to offset its
capital gains, although a portion of the amount of those losses which may offset
the High Yield Fund II's capital gains in any given year will be limited. As a
result of this limitation, it is possible that the High Yield Fund II may not be
able to use its losses as rapidly as it might have had the Reorganizations not
occurred, and part of these losses may not be useable at all. The ability of the
High Yield Fund II 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 these various capital loss carryforwards currently are available only to
pre-reorganization shareholders of each relevant Fund. After the
Reorganizations, however, these benefits will inure to the benefit of all
post-reorganization shareholders of the High Yield Fund II.
EXPENSES OF THE REORGANIZATIONS. ING Pilgrim Investments will bear half of
the cost of the Reorganizations. The Funds will bear the other half of the
expenses relating to the proposed Reorganizations, 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 their
relative net asset values immediately before Closing.
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ADDITIONAL INFORMATION ABOUT THE FUNDS
FORM OF ORGANIZATION. Each of the Disappearing Funds is a series of the
Pilgrim Mayflower Trust, which is a Massachusetts business trust. The High Yield
Fund II is a series of Pilgrim Mutual Funds, which is a Delaware business trust.
Both the Pilgrim Mayflower Trust and Pilgrim Mutual Funds are governed by an
eleven-member Boards of Trustees. The eleven Trustees of the Pilgrim Mayflower
Trust also serve on the Board of Pilgrim Mutual Funds.
DISTRIBUTOR. ING Pilgrim Securities, Inc. (the "Distributor"), whose
address is 7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258, is the
principal distributor for each of the Funds. The High Yield Fund II also offers
Class Q and Class T shares, which have different sales charges and other
expenses that may affect their performance. You can obtain more information
about these other share Classes by calling (800) 992-0180.
DIVIDENDS AND OTHER DISTRIBUTIONS. Each of the Funds 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 a Reorganization Agreement is approved by a Disappearing Funds'
shareholders, then as soon as practicable before the Closing, each Disappearing
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 pro forma
capitalization as of June 30, 2000, giving effect to the Reorganizations:
NET ASSET
VALUE SHARES
NET ASSETS PER SHARE OUTSTANDING
---------- --------- -----------
HIGH TOTAL RETURN FUND
Class A $ 49,085,570 $ 2.79 17,562,989
Class B $147,278,587 $ 2.79 52,780,903
Class C $ 19,438,361 $ 2.81 6,926,049
HIGH TOTAL RETURN FUND II
Class A $ 10,478,777 $ 3.44 3,048,419
Class B $ 61,147,391 $ 3.44 17,790,255
Class C $ 12,895,448 $ 3.44 3,747,530
HIGH YIELD FUND II
Class A $ 34,415,080 $10.80 3,185,343
Class B $103,246,586 $10.81 9,547,339
Class C $ 23,323,984 $10.81 2,156,686
Class Q $ 6,881,569 $10.82 635,888
Class T $ 31,341,832 $10.81 2,899,430
HIGH YIELD FUND II AFTER REORGANIZATION (PRO FORMA)
Class A $ 93,979,427 $10.80 8,701,799
Class B $311,672,564 $10.81 28,831,875
Class C $ 55,657,793 $10.81 5,148,732
Class Q $ 6,881,569 $10.82 635,888
Class T $ 31,341,832 $10.81 2,899,430
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GENERAL INFORMATION ABOUT THE PROXY STATEMENT
SOLICITATION OF PROXIES
Solicitation of proxies is being made primarily by the mailing of this
Notice and Proxy Statement with its enclosures on or about _______, 2001.
Shareholders of the Disappearing Funds whose shares are held by nominees, such
as brokers, can vote their proxies by contacting their respective nominee. In
addition to the solicitation of proxies by mail, employees of ING Pilgrim
Investments and its affiliates, without additional compensation, may solicit
proxies in person or by telephone, telegraph, facsimile, or oral communication.
Pilgrim Mayflower Trust, on behalf of the Disappearing Funds, has retained
Shareholder Communications Corporation, a professional proxy solicitation firm,
to assist with any necessary solicitation of proxies. Shareholders of the
Disappearing Funds may receive a telephone call from the professional proxy
solicitation firm asking the shareholder to vote.
A shareholder may revoke the accompanying proxy at any time prior to its
use by filing with the High Total Return Fund or the High Total Return Fund II,
as applicable, a written revocation or duly executed proxy bearing a later date.
In addition, any shareholder who attends the Meeting in person may vote by
ballot at the Meeting, thereby canceling any proxy previously given. The persons
named in the accompanying proxy will vote as directed by the proxy, but in the
absence of voting directions in any proxy that is signed and returned, they
intend to vote "FOR" the Reorganization proposal and may vote in their
discretion with respect to other matters not now known to the Board of Trustees
of the Pilgrim Mayflower Trust that may be presented at the Meeting.
VOTING RIGHTS
Shareholders of the Disappearing Funds 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 no preemptive or subscription rights.
Shareholders of the Disappearing Funds at the close of business on
_________, 2000 (the "Record Date") will be entitled to be present and give
voting instructions for the High Total Return Fund or the High Total Return Fund
II, as applicable, at the meeting with respect to their shares owned as of that
Record Date. As of the Record Date, ______ shares of the High Total Return Fund
were outstanding and entitled to vote and _______ shares of the High Total
Return Fund II were outstanding and entitled to vote.
Approval of a Reorganization requires the affirmative vote of a majority of
the outstanding shares of the pertinent Disappearing Fund. In the event that the
shareholders of only one of these Funds approve the Reorganization, that
particular Fund whose shareholders approved the Reorganization could be
reorganized into the High Yield Fund II. The Fund not approving the
Reorganization may continue to operate as a separate entity.
The holders of a majority 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 meeting for purposes of determining a quorum. However, abstentions and
broker non-votes will not be deemed represented at the meeting for purposes of
calculating the vote on any matter. As a result, an abstention or broker
non-vote will have the same effect as a vote against the Reorganizations.
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The Disappearing Funds expect that, before the meeting, broker-dealer firms
holding shares of the Disappearing Funds 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, the Funds understand that the
broker-dealers that are members of the New York Stock Exchange may vote on the
items to be considered at the meeting on behalf of their customers and
beneficial owners under the rules of the New York Stock Exchange.
To the knowledge of Pilgrim Mayflower Trust, as of November 1, 2000, no
current Trustee owns 1% or more of the outstanding shares of High Total Return
Fund, and the officers and Trustees own, as a group, less than 1% of the shares
of High Total Return Fund.
To the knowledge of Pilgrim Mayflower Trust, as of November 1, 2000, no
current Trustee, owned 1% or more of the outstanding shares of High Total Return
Fund II, and the officers and Trustees own, as a group, less than 1% of the
shares of High Total Return Fund II.
As of November 1, 2000, no person owned beneficially or of record 5% or
more of the outstanding shares of any class of the Disappearing Funds or the
High Yield Fund II.
OTHER MATTERS TO COME BEFORE THE MEETING
The Pilgrim Mayflower Trust does not know of any matters to be presented at
the meeting other than those described in this Proxy Statement/Prospectus. If
other business should properly come before the meeting, the proxyholders will
vote thereon in accordance with their best judgment.
SHAREHOLDER PROPOSALS
The Pilgrim Mayflower Trust is not required to hold regular annual meetings
and, in order to minimize their costs, does not intend to hold meetings of
shareholders unless so required by applicable law, regulation, regulatory policy
or if otherwise deemed advisable by the Disappearing Funds' management.
Therefore it is not practicable to specify a date by which shareholder proposals
must be received in order to be incorporated in an upcoming proxy statement for
an annual meeting.
REPORTS TO SHAREHOLDERS
ING Pilgrim Investments will furnish, without charge, a copy of the most
recent Annual Report regarding any of the Funds, and the most recent Semi-Annual
Report succeeding the Annual Report, if any, on request. Requests for such
reports should be directed to Pilgrim at 7337 E. Doubletree Ranch Road,
Scottsdale, Arizona 85258 or at (800) 992-0180.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED,
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY 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
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APPENDIX A
Set forth below is an excerpt from Pilgrim High Yield Fund II's Annual
Report, dated June 30, 2000, regarding the Fund's performance.
MANAGEMENT TEAM: Kevin Mathews, Senior Vice President & Senior Portfolio
Manager, Charles Ullerich, Vice President & Portfolio Manager
GOALS: Pilgrim High Yield Fund II (the "Fund" or "High Yield II") seeks to
provide a high level of current income and capital growth by investing in high
yield debt securities.
MARKET OVERVIEW: 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% 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. Spread 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 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 is a positive sign as there is still buyer
demand for quality issues, even in a slow and cautious market.
PERFORMANCE: For the one year ended June 30, 2000, the Fund's Class A shares,
excluding sales charges, provided a total return of 3.96% compared to the Lehman
Brothers High Yield Index, which declined 1.02%, and the First Boston High Yield
Index, which declined 0.40% for the same period.
PORTFOLIO SPECIFICS: The Fund outperformed 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.
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Portfolio cash levels have risen recently as we expect the market to provide
attractive buying opportunities in the latter part of the second half of 2000.
We will take the opportunity, early in the second half of 2000, to review our
telecommunications exposure, possibly looking for a reduction in weighting, and
to consider sectors that have dramatically underperformed the high yield market
during the last 12 to 18 months as possible buy candidates.
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-B 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: Our outlook is cautious as we continue to witness a 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 covenant 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.
3/27/98 6/98 6/99 6/30/00
------- ---- ---- -------
Pilgrim High Yield Fund II
Class A with Sales Charge 10,000 9,693 9,779 10,193
Pilgrim High Yield fund II
Class A without Sales Charge 10,000 10,174 10,265 10,699
Lehman Brothers High Yield Index 10,000 10,110 10,072 9,969
Average Annual Total Returns for the
Periods Ended June 30, 2000
SINCE INCEPTION SINCE INCEPTION
1 YEAR 3/27/98 3/31/00
------ ------- -------
Including Sales Charge:
Class A (1) -0.18% 0.85% --
Class B (2) -1.72% 1.33% --
Class C (3) 2.28% 2.44% --
Class T (4) -- -- -4.49%
Excluding Sales Charge:
Class A 3.96% 3.03% --
Class B 3.28% 2.44% --
Class C 3.28% 2.44% --
Class T -- -- -0.49%
Lehman Brothers High Yield Index -1.02% -0.14% 1.15%
Based on a $10,000 initial investment, the graph and table above illustrate the
total return of Pilgrim High Yield II Fund against the Lehman Brothers High
Yield 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
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operating expenses. An investor cannot invest directly in an 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 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 year and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1.00% for the
1-year return.
(4) Reflects deduction of the Class C deferred sales charge of 4.00%.
(5) Since inception performance for index is shown from 04/01/98.
PRINCIPAL RISK FACTOR(S): Exposure to financial, market and interest rate risks.
Higher yields reflect the higher credit risks associated with certain lower
rated securities in the Fund's portfolio and in some cases, the lower market
price for those instruments. Up to 35% of total assets may be invested in
foreign securities. International investing does pose special risks, including
currency fluctuation and political risks not found in investments that are
solely domestic. Risks of foreign investing are generally intensified for
investments in emerging markets.
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APPENDIX B
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____ day of _____________, 2001, by and between Pilgrim Mutual Funds, a
Delaware business trust (the "Pilgrim Trust") with its principal place of
business at 7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258, on behalf
of its series, the Pilgrim High Yield Fund II (the "Acquiring Fund"), and
Pilgrim Mayflower Trust, a Massachusetts business trust (the "Mayflower Trust")
with its principal place of business at 7337 E. Doubletree Ranch Road,
Scottsdale, Arizona 85258, on behalf of its series, the Pilgrim High Total
Return 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 (no par value) of the Acquiring
Fund (the "Acquiring Fund Shares"), the assumption by the Acquiring Fund of all
liabilities of the Acquired Fund, and the distribution of the Acquiring Fund
Shares to the shareholders of the Acquired Fund in complete liquidation of the
Acquired Fund as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are open-end, registered
investment companies of the management type or a series thereof and the Acquired
Fund owns securities which generally are assets of the character in which the
Acquiring Fund is permitted to invest;
WHEREAS, the Trustees of the 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 Mayflower 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
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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").
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
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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 and 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.
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 the
Acquiring Fund's record keeping agent and by each Fund's respective independent
accountants.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be _____ ___, 2001, or such other date as the
parties may agree to in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of immediately after the close of
business on the Closing Date unless otherwise agreed to by the parties. The
close of business on the Closing Date shall be as of 4:00 p.m., Eastern time.
The Closing shall be held at the offices of the Acquiring Fund or at such other
time and/or place as the parties may agree.
3.2. The Acquired Fund shall direct State Street, as custodian for the
Acquired Fund (the "Custodian"), to deliver, at the Closing, a certificate of an
authorized officer stating that (i) the Assets shall have been delivered in
proper form to the Acquiring Fund within two business days prior to or on the
Closing Date, and (ii) all necessary taxes in connection with the delivery of
the Assets, including all applicable federal and state stock transfer stamps, if
any, have been paid or provision for payment has been made. The Acquired Fund's
portfolio securities represented by a certificate or other written instrument
shall be presented by the Acquired Fund Custodian to the custodian for the
Acquiring Fund for examination no later than five business days preceding the
Closing Date, and shall be transferred and delivered by the Acquired Fund as of
the Closing Date for the account of the Acquiring Fund duly endorsed in proper
form for transfer in such condition as to constitute good delivery thereof. The
Acquired Fund's portfolio securities and instruments deposited with a securities
depository, as defined in Rule 17f-4 under the Investment Company Act of 1940,
as amended (the "1940 Act"), shall direct the Custodian to deliver as of the
Closing Date by book entry in accordance with the customary practices of such
depositories and the custodian for Acquiring Fund. The cash to be transferred by
the Acquired Fund shall be delivered by wire transfer of federal funds on the
Closing Date.
3.3. The Acquired Fund shall direct DST Systems, Inc. (the "Transfer
Agent"), on behalf of the Acquired Fund, to deliver at the Closing a certificate
of an authorized officer stating that its records contain the names and
addresses of the Acquired Fund Shareholders and the number and percentage
ownership of outstanding Class A, Class B and Class C shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited on
the Closing Date to the Secretary of the 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
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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.
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 Mayflower Trust, the Mayflower 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 Mayflower Trust
which is a business trust duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts with power under the
Mayflower 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 Mayflower 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;
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(f) The Acquired Fund is not engaged currently, and the execution, delivery
and performance of this Agreement will not result, in (i) a material violation
of the Mayflower Trust's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Mayflower Trust, on behalf of the Acquired Fund, is a party or by which it is
bound, or (ii) the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease, judgment
or decree to which the 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 Mayflower 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 its business. The
Mayflower 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
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 Portfolio of Investments of the Acquired Fund at
October 31, 2000 have been audited by PricewaterhouseCoopers LLP, independent
auditors, 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, 2000, 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
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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 Acquired Fund (recognizing that, under Massachusetts law,
it is theoretically possible that shareholders of the Acquired Fund could, under
certain circumstances, be held personally liable for obligations of the Acquired
Fund) and have been offered and sold in every state and the District of Columbia
in compliance in all material respects with applicable registration requirements
of the 1933 Act and state securities laws. All of the issued and outstanding
shares of the Acquired Fund will, at the time of Closing, be held by the persons
and in the amounts set forth in the records of the Transfer Agent, on behalf of
the Acquired Fund, as provided in paragraph 3.3. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or purchase
any of the shares of the Acquired Fund, nor is there outstanding any security
convertible into any of the Acquired Fund shares;
(n) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action, if any,
on the part of the Trustees of the Acquired Fund, and, subject to the approval
of the shareholders of the Acquired Fund, this Agreement will constitute a valid
and binding obligation of the Acquired Fund, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(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 Mayflower 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
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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
shares of the Acquiring Fund under the 1933 Act, is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required by state
securities laws;
(d) The current prospectus and statement of additional information of the
Acquiring Fund and each prospectus and statement of additional information of
the Acquiring Fund used during the three years previous to the date of this
Agreement conforms or conformed at the time of its use in all material respects
to the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the Commission thereunder and does not or did not at the time
of its use include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading;
(e) On the Closing Date, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets, free of any liens of other encumbrances,
except those liens or encumbrances as to which the Acquired Fund has received
notice and necessary documentation at or prior to the Closing;
(f) The Acquiring Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in (i) a material
violation of the 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 Acquiring Fund, is a party or by which it is bound;
(g) Except as otherwise disclosed in writing to and accepted by the
Mayflower 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 its business. The 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
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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 Pilgrim 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;
(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 Pilgrim 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
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accurate and complete in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations applicable
thereto; and
(p) That insofar as it relates to the Acquiring Fund, the Registration
Statement relating to the Acquiring Fund Shares issuable hereunder, and the
proxy materials of the Acquired Fund to be included in the Registration
Statement, and any amendment or supplement to the foregoing, will, from the
effective date of the Registration Statement through the date of the meeting of
shareholders of the Acquired Fund contemplated therein (i) not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading provided,
however, that the representations and warranties in this subparagraph (p) shall
not apply to statements in or omissions from the Registration Statement made in
reliance upon and in conformity with information that was furnished by the
Acquired Fund for use therein, and (ii) comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date, it
being understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions, and any other
distribution that may be advisable.
5.2. The Acquired Fund will call a meeting of the shareholders of the
Acquired Fund to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3. The Acquired Fund covenants that the Class A, 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
"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.
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5.9. The Mayflower Trust, on behalf of the Acquired Fund, covenants that
the Mayflower 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
Mayflower 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 Mayflower Trust, on behalf of the Acquired Fund, to
consummate the transactions provided for herein shall be subject, at the
Mayflower 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 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 Acquired Fund a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in a form reasonably satisfactory to the
Mayflower 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 Mayflower 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.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Pilgrim Mutual Funds, 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 Mayflower 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 Mayflower 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;
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7.2. The Mayflower 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 Mayflower Trust;
7.3. The Mayflower 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 Mayflower 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 Mayflower 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 Mayflower 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 Mayflower 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 Mayflower Trust's
Declaration of Trust, By-Laws, applicable Massachusetts law and the 1940 Act,
and certified copies of the resolutions evidencing such approval shall have been
delivered to the Acquiring Fund. Notwithstanding anything herein to the
contrary, neither the Pilgrim Trust nor the Mayflower 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;
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 Mayflower 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
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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 Mayflower 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 Mayflower Trust. Notwithstanding anything herein to the contrary, neither
the Pilgrim Trust nor the Mayflower Trust may waive the condition set forth in
this paragraph 8.5.
9. BROKERAGE FEES AND EXPENSES
9.1. The Pilgrim Trust, on behalf of the Acquiring Fund, and the Mayflower
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.
9.2. The expenses relating to the proposed Reorganization will be shared so
that (1) half of such costs are borne by the investment adviser to the Acquired
and Acquiring Funds, and (2) half are borne by the 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.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. The Pilgrim Trust and the Mayflower 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.
10.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing shall survive the Closing.
11. TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
and abandoned by resolution of the Board of Trustees of the Mayflower Trust or
the Board of Trustees of the Pilgrim Trust at any time prior to the Closing
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Date, if circumstances should develop that, in the opinion of the Board, make
proceeding with the Agreement inadvisable.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be deemed necessary or advisable by the authorized officers of the Mayflower
Trust and the Pilgrim Trust; provided, however, that following the meeting of
the shareholders of the Acquired Fund called by the Mayflower 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.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by
facsimile, personal service or prepaid or certified mail addressed to the
Pilgrim Trust or to the Mayflower 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.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1. The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to its principles of conflicts
of laws.
14.4. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5. It is expressly agreed that the obligations of the parties hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents, or employees of the Pilgrim Trust or Mayflower Trust personally, but
shall bind only the trust property of such party, as provided in the Declaration
of Trust of the Pilgrim Trust or Mayflower 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 each party as provided in the Declaration of Trust of each
party.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
PILGRIM MUTUAL FUNDS on behalf of its
Attest: PILGRIM HIGH YIELD FUND II series
By:
---------------------------------- -------------------------------------
Secretary
Its:
------------------------------------
PILGRIM MAYFLOWER TRUST on behalf of its
Attest: PILGRIM HIGH TOTAL RETURN FUND series
By:
---------------------------------- -------------------------------------
Secretary
Its:
------------------------------------
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APPENDIX C
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____ day of _____________, 2001, by and between Pilgrim Mutual Funds, a
Delaware business trust (the "Pilgrim Trust") with its principal place of
business at 7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258, on behalf
of its series, the Pilgrim High Yield Fund II (the "Acquiring Fund"), and
Pilgrim Mayflower Trust, a Massachusetts business trust (the "Mayflower Trust")
with its principal place of business at 7337 E. Doubletree Ranch Road,
Scottsdale, Arizona 85258, on behalf of its series, the Pilgrim High Total
Return Fund II (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 (no par value) of the Acquiring
Fund (the "Acquiring Fund Shares"), the assumption by the Acquiring Fund of all
liabilities of the Acquired Fund, and the distribution of the Acquiring Fund
Shares to the shareholders of the Acquired Fund in complete liquidation of the
Acquired Fund as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are open-end, registered
investment companies of the management type or a series thereof and the Acquired
Fund owns securities which generally are assets of the character in which the
Acquiring Fund is permitted to invest;
WHEREAS, the Trustees of the 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 Mayflower 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
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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").
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
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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 and 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.
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 the
Acquiring Fund's record keeping agent and by each Fund's respective independent
accountants.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be _____ ___, 2001, or such other date as the
parties may agree to in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of immediately after the close of
business on the Closing Date unless otherwise agreed to by the parties. The
close of business on the Closing Date shall be as of 4:00 p.m., Eastern time.
The Closing shall be held at the offices of the Acquiring Fund or at such other
time and/or place as the parties may agree.
3.2. The Acquired Fund shall direct State Street, as custodian for the
Acquired Fund (the "Custodian"), to deliver, at the Closing, a certificate of an
authorized officer stating that (i) the Assets shall have been delivered in
proper form to the Acquiring Fund within two business days prior to or on the
Closing Date, and (ii) all necessary taxes in connection with the delivery of
the Assets, including all applicable federal and state stock transfer stamps, if
any, have been paid or provision for payment has been made. The Acquired Fund's
portfolio securities represented by a certificate or other written instrument
shall be presented by the Acquired Fund Custodian to the custodian for the
Acquiring Fund for examination no later than five business days preceding the
Closing Date, and shall be transferred and delivered by the Acquired Fund as of
the Closing Date for the account of the Acquiring Fund duly endorsed in proper
form for transfer in such condition as to constitute good delivery thereof. The
Acquired Fund's portfolio securities and instruments deposited with a securities
depository, as defined in Rule 17f-4 under the Investment Company Act of 1940,
as amended (the "1940 Act"), shall direct the Custodian to deliver as of the
Closing Date by book entry in accordance with the customary practices of such
depositories and the custodian for Acquiring Fund. The cash to be transferred by
the Acquired Fund shall be delivered by wire transfer of federal funds on the
Closing Date.
3.3. The Acquired Fund shall direct DST Systems, Inc. (the "Transfer
Agent"), on behalf of the Acquired Fund, to deliver at the Closing a certificate
of an authorized officer stating that its records contain the names and
addresses of the Acquired Fund Shareholders and the number and percentage
ownership of outstanding Class A, Class B and Class C shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited on
the Closing Date to the Secretary of the 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
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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.
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 Mayflower Trust, the Mayflower 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 Mayflower Trust
which is a business trust duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts with power under the
Mayflower 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 Mayflower 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;
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(f) The Acquired Fund is not engaged currently, and the execution, delivery
and performance of this Agreement will not result, in (i) a material violation
of the Mayflower Trust's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Mayflower Trust, on behalf of the Acquired Fund, is a party or by which it is
bound, or (ii) the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease, judgment
or decree to which the 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 Mayflower 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 its business. The
Mayflower 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
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 Portfolio of Investments of the Acquired Fund at
October 31, 2000 have been audited by PricewaterhouseCoopers LLP, independent
auditors, 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, 2000, 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
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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 Acquired Fund (recognizing that, under Massachusetts law,
it is theoretically possible that shareholders of the Acquired Fund could, under
certain circumstances, be held personally liable for obligations of the Acquired
Fund) and have been offered and sold in every state and the District of Columbia
in compliance in all material respects with applicable registration requirements
of the 1933 Act and state securities laws. All of the issued and outstanding
shares of the Acquired Fund will, at the time of Closing, be held by the persons
and in the amounts set forth in the records of the Transfer Agent, on behalf of
the Acquired Fund, as provided in paragraph 3.3. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or purchase
any of the shares of the Acquired Fund, nor is there outstanding any security
convertible into any of the Acquired Fund shares;
(n) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action, if any,
on the part of the Trustees of the Acquired Fund, and, subject to the approval
of the shareholders of the Acquired Fund, this Agreement will constitute a valid
and binding obligation of the Acquired Fund, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(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 Mayflower 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
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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
shares of the Acquiring Fund under the 1933 Act, is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required by state
securities laws;
(d) The current prospectus and statement of additional information of the
Acquiring Fund and each prospectus and statement of additional information of
the Acquiring Fund used during the three years previous to the date of this
Agreement conforms or conformed at the time of its use in all material respects
to the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the Commission thereunder and does not or did not at the time
of its use include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading;
(e) On the Closing Date, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets, free of any liens of other encumbrances,
except those liens or encumbrances as to which the Acquired Fund has received
notice and necessary documentation at or prior to the Closing;
(f) The Acquiring Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in (i) a material
violation of the 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 Acquiring Fund, is a party or by which it is bound;
(g) Except as otherwise disclosed in writing to and accepted by the
Mayflower 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 its business. The 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
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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 Pilgrim 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;
(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 Pilgrim 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
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accurate and complete in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations applicable
thereto; and
(p) That insofar as it relates to the Acquiring Fund, the Registration
Statement relating to the Acquiring Fund Shares issuable hereunder, and the
proxy materials of the Acquired Fund to be included in the Registration
Statement, and any amendment or supplement to the foregoing, will, from the
effective date of the Registration Statement through the date of the meeting of
shareholders of the Acquired Fund contemplated therein (i) not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading provided,
however, that the representations and warranties in this subparagraph (p) shall
not apply to statements in or omissions from the Registration Statement made in
reliance upon and in conformity with information that was furnished by the
Acquired Fund for use therein, and (ii) comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date, it
being understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions, and any other
distribution that may be advisable.
5.2. The Acquired Fund will call a meeting of the shareholders of the
Acquired Fund to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3. The Acquired Fund covenants that the Class A, 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
"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.
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5.9. The Mayflower Trust, on behalf of the Acquired Fund, covenants that
the Mayflower 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
Mayflower 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 Mayflower Trust, on behalf of the Acquired Fund, to
consummate the transactions provided for herein shall be subject, at the
Mayflower 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 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 Acquired Fund a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in a form reasonably satisfactory to the
Mayflower 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 Mayflower 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.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Pilgrim Mutual Funds, 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 Mayflower 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 Mayflower 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;
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7.2. The Mayflower 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 Mayflower Trust;
7.3. The Mayflower 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 Mayflower 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 Mayflower 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 Mayflower 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 Mayflower 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 Mayflower Trust's
Declaration of Trust, By-Laws, applicable Massachusetts law and the 1940 Act,
and certified copies of the resolutions evidencing such approval shall have been
delivered to the Acquiring Fund. Notwithstanding anything herein to the
contrary, neither the Pilgrim Trust nor the Mayflower 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;
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 Mayflower 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
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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 Mayflower 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 Mayflower Trust. Notwithstanding anything herein to the contrary, neither
the Pilgrim Trust nor the Mayflower Trust may waive the condition set forth in
this paragraph 8.5.
9. BROKERAGE FEES AND EXPENSES
9.1. The Pilgrim Trust, on behalf of the Acquiring Fund, and the Mayflower
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.
9.2. The expenses relating to the proposed Reorganization will be shared so
that (1) half of such costs are borne by the investment adviser to the Acquired
and Acquiring Funds, and (2) half are borne by the 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.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. The Pilgrim Trust and the Mayflower 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.
10.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing shall survive the Closing.
11. TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
and abandoned by resolution of the Board of Trustees of the Mayflower Trust or
the Board of Trustees of the Pilgrim Trust at any time prior to the Closing
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Date, if circumstances should develop that, in the opinion of the Board, make
proceeding with the Agreement inadvisable.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be deemed necessary or advisable by the authorized officers of the Mayflower
Trust and the Pilgrim Trust; provided, however, that following the meeting of
the shareholders of the Acquired Fund called by the Mayflower 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.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by
facsimile, personal service or prepaid or certified mail addressed to the
Pilgrim Trust or to the Mayflower 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.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1. The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to its principles of conflicts
of laws.
14.4. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
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 Mayflower Trust personally, but
shall bind only the trust property of such party, as provided in the Declaration
of Trust of the Pilgrim Trust or Mayflower 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 each party as provided in the Declaration of Trust of each
party
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WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed by its President or Vice President and its seal to be affixed thereto
and attested by its Secretary or Assistant Secretary.
PILGRIM MUTUAL FUNDS on behalf of its
Attest: PILGRIM HIGH YIELD FUND II series
By:
---------------------------------- -------------------------------------
Secretary
Its:
------------------------------------
PILGRIM MAYFLOWER TRUST on behalf of its
Attest: PILGRIM HIGH TOTAL RETURN FUND series
By:
---------------------------------- -------------------------------------
Secretary
Its:
------------------------------------
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APPENDIX D
ADDITIONAL INFORMATION REGARDING PILGRIM HIGH YIELD FUND II
SHAREHOLDER GUIDE
PILGRIM PURCHASE OPTIONS(TM)
This Proxy Statement/Prospectus relates to three separate Classes of 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 (Rule 12b-1) and service fee arrangements. The
Fund also offers Class Q and Class T shares, which have different sales charges
and other expenses that may affect their performance. You can obtain more
information about these other share Classes 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 either the High Total Return Fund or the High Total Return Fund II
shares held by you immediately prior to the Reorganization, and the period that
you held shares of either the High Total Return Fund or the High Total Return
Fund II 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 involved in
the Reorganization 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 Distribution (12b-1)
and Service Fees (5) 0.35% 1.00% 1.00%
Maximum Purchase Unlimited $250,000 Unlimited
Automatic Conversion to Class A N/A 8 Years(6) N/A
----------
(1) 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. See "Class A Shares: Initial Sales
Charge Alternative" in this Appendix D.
(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 D.
(4) Imposed upon redemption within 1 year from purchase.
(5) Annual asset-based distribution charge.
(6) Class B shares of the Fund issued to shareholders of the Disappearing Fund
in the Reorganization will convert to Class A shares in the eighth year
from the original Date of purchase of the Class B shares of the
Disappearing Fund.
The relative impact of the initial sales charges and ongoing annual expenses
will depend on the length of time a share is held. Orders for Class B shares in
excess of $250,000 will be accepted as orders for Class A shares or declined.
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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.
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 Reorganizations
with respect to Class A shares of either of the Disappearing Funds that were
subject to a CDSC at the time of the Reorganizations, will be subject to a CDSC
of up to 1% from the Date of purchase of the original shares of either of the
Disappearing Funds.
REDUCED SALES CHARGES. An investor may immediately qualify for a reduced
sales charge on a purchase of Class A shares of the Fund or other open-end funds
in the Pilgrim funds and 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 Funds) ("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.
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<PAGE>
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.
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 distribution and service fees at an annual rate of 1.00% of the
average daily net assets of the Class, which is higher than the distribution and
service fees of Class A shares. The higher distribution and service 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.
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<PAGE>
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.
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, 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% 0.75%
Class C 0.25% 0.75%
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
D-4
<PAGE>
Class of shares are charged proportionately only to the outstanding shares of
that Class.
PURCHASING SHARES. The Fund reserves the right to liquidate sufficient
shares to recover annual Transfer Agent fees should the investor fail to
maintain his/her account value at a minimum of $1,000.00 ($250.00 for IRAs). The
minimum initial investment in the Fund is $1,000 ($250 for IRAs), and the
minimum for additional investment in the Fund is $100. The 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.
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 then 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) 992-0180.
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 NAV
next 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
D-5
<PAGE>
been received. If you purchase by wire, you must submit an application form in a
timely fashion. If an order or payment by wire is received after the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern
time), the shares will not be credited until the next business day.
You will receive a confirmation of each new transaction in your account,
which also will show you the number of shares of the Fund you own including the
number of shares being held in safekeeping by the Transfer Agent for your
account. You may rely on these confirmations in lieu of certificates as evidence
of your ownership. Certificates representing shares of the Fund will not be
issued unless you request them in writing.
TELEPHONE ORDERS. The Fund and its Transfer Agent will not be responsible
for the authenticity of phone instructions or losses, if any, resulting from
unauthorized shareholder transactions if they reasonably believe that such
instructions were genuine. The Fund and its Transfer Agent have established
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures include recording telephone instructions for exchanges
and expedited redemptions, requiring the caller to give certain specific
identifying information, and providing written confirmation to shareholders of
record not later than five days following any such telephone transactions. If
the Fund and its Transfer Agent do not employ these procedures, they may be
liable for any losses due to unauthorized or fraudulent telephone instructions.
Telephone redemptions may be executed on all accounts other than retirement
accounts.
EXCHANGE PRIVILEGES AND RESTRICTIONS
AN EXCHANGE PRIVILEGE IS AVAILABLE. Exchange requests may be made in
writing to the Transfer Agent or by calling the Shareholder Servicing Agent at
(800) 992-0180. There is no specific limit on exchange frequency; however, the
Fund is intended for long term investment and not as a trading vehicle. 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 60
days' written notice to shareholders.
Shares of any 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 at (800) 992-0180 unless you mark the box on the
Account Application that indicates that you do not wish to have the telephone
exchange privilege.
D-6
<PAGE>
SYSTEMATIC EXCHANGE PRIVILEGE. With an initial account balance of at least
$5,000 and subject to the information and limitations outlined above, you may
elect to have a specified dollar amount of shares systematically exchanged,
monthly, quarterly, semi-annually or annually (on or about the 10th of the
applicable month), from your account to an identically registered account in the
same Class of any other open-end Pilgrim fund or ING fund. This exchange
privilege may be modified at any time or terminated upon 60 days' written notice
to shareholders.
SMALL ACCOUNTS. Due to the relatively high cost of handling small
investments, the Fund reserves the right upon 30 days' written notice to redeem,
at NAV, the shares of any shareholder whose account (except for IRAs) has a
value of less than $1,000, other than as a result of a decline in the NAV per
share.
HOW TO REDEEM SHARES
Shares of the Fund will be redeemed at the NAV (less any applicable CDSC
and/or federal income tax withholding) next determined after receipt of a
redemption request in good form on any day the New York Stock Exchange is open
for business.
SYSTEMATIC WITHDRAWAL PLAN. You may elect to have monthly, quarterly,
semi-annual or annual payments in any fixed amount 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
D-7
<PAGE>
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
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. Both accounts must be of the same
Class.
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 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.
D-8
<PAGE>
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.
D-9
<PAGE>
PILGRIM HIGH YIELD FUND II 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
-------------------------------------------
Three
Year months Year March 27,
ended ended ended 1998 to
June 30, June 30, March 31, March 31,
2000 1999(2) 1999 1998(1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 11.57 11.66 12.72 12.70
Income from investment operations:
Net investment income $ 1.18 0.28 1.12 0.01
Net realized and unrealized gains (loss)
on investments $ (0.75) (0.09) (1.00) 0.01
Total from investment operations $ 0.43 0.19 0.12 0.02
Less distributions from:
Net investment income $ 1.20 0.28 1.18 --
Net asset value, end of period $ 10.80 11.57 11.66 12.72
Total Return(3): % 3.96 1.60 1.13 0.16
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 34,416 16,795 17,327 4,690
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 1.18 1.10 1.12 1.06
Gross expenses prior to expense
reimbursement(4) % 1.37 1.37 1.53 1.06
Net investment income (loss) after
expense reimbursement(4)(5) % 10.63 9.68 9.44 7.22
Portfolio turnover % 113 44 242 484
<CAPTION>
Class B
---------------------------------------------
Three
Year months Year March 27,
Ended ended ended 1998 to
June 30, June 30, March 31, March 31,
2000 1999(2) 1999 1998(1)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period 11.58 11.66 12.71 12.69
Income from investment operations:
Net investment income 1.11 0.27 1.04 0.01
Net realized and unrealized gains (loss)
on investments (0.75) (0.09) (0.99) 0.01
Total from investment operations 0.36 0.18 0.05 0.02
Less distributions from:
Net investment income 1.13 0.26 1.10 --
Net asset value, end of period 10.81 11.58 11.66 12.71
Total Return(3): 3.28 1.53 0.55 0.16
Ratios/Supplemental Data:
Net assets, end of period (000's) 103,246 41,882 42,960 8,892
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) 1.83 1.75 1.77 1.69
Gross expenses prior to expense
reimbursement(4) 2.02 2.02 2.18 1.69
Net investment income (loss) after
expense reimbursement(4)(5) 9.98 9.03 8.84 6.61
Portfolio turnover 113 44 242 484
<CAPTION>
Class C Class T
--------------------------------------------- -----------
Three
Year months Year March 27, March 31,
ended ended ended 1998 to 2000(6) to
June 30, June 30, March 31, March 31, June 30,
2000 1999(2) 1999 1998(1) 2000
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 11.58 11.66 12.71 12.69 11.07
Income from investment operations:
Net investment income (loss) $ 1.10 0.27 1.04 0.01 0.29
Net realized and unrealized gains (loss)
on investments $ (0.74) (0.09) (0.99) 0.01 (0.25)
Total from investment operations $ 0.36 0.18 0.05 0.02 0.04
Less distributions from:
Net investment income $ 1.13 0.26 1.10 -- 0.30
Net asset value, end of period $ 10.81 11.58 11.66 12.71 10.81
Total Return(3): % 3.28 1.53 0.55 0.16 (0.49)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 23,324 18,618 21,290 4,815 31,342
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 1.83 1.75 1.77 1.66 1.48
Gross expenses prior to expense
reimbursement(4) % 2.02 2.02 2.18 1.66 1.67
Net investment income (loss) after
expense reimbursement(4)(5) % 9.98 9.03 8.79 6.91 10.33
Portfolio turnover % 113 44 242 484 113
</TABLE>
D-10
<PAGE>
<TABLE>
<CAPTION>
Class Q
-----------------------------------------------------
Year Three months Year March 27,
ended ended ended 1998(1) to
June 30, June 30, March 31, March 31,
2000 1999(2) 1999 1998
---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 11.59 11.68 12.72 12.70
Income from investment operations:
Net investment income (loss) $ 1.20 0.30 1.16 0.01
Net realized and unrealized gains (loss) on
securities and foreign currency $ (0.76) (0.11) (1.01) 0.01
Total from investment operations $ 0.44 0.19 0.15 0.02
Less distributions from:
Net investment income $ (1.21) 0.28 1.19 --
Net asset value, end of period $ 10.82 11.59 11.68 12.72
Total Return(3): % 4.04 1.63 1.40 0.16
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 6,882 3,229 6,502 567
Ratios to average net assets:
Net expenses after expense reimbursement(4)(5) % 1.08 0.90 0.87 0.97
Gross expenses prior to expense reimbursement(4) % 1.27 1.17 1.28 0.97
Net investment income (loss) after expense
reimbursement(4)(5) % 10.73 9.88 10.01 7.53
Portfolio turnover % 113 44 242 484
</TABLE>
(1) The Fund commenced operations on March 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.
(6) Commencement of offering of shares.
D-11
<PAGE>
APPENDIX E
SUMMARY DESCRIPTION OF BOND RATINGS
The following are excerpts from S&P's description of its bond ratings: BB -
less vulnerable in the near term than other lower-rated obligors, faces major
ongoing uncertainties and exposure to adverse business, financial, or economic
conditions which could lead to the obligor's inadequate capacity to meet its
financial commitments. B - more vulnerable than the obligors rated `BB', but the
obligor currently has the capacity to meet its financial commitments. Adverse
business, financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitments. CCC - currently
vulnerable, dependent upon favorable business, financial, and economic
conditions to meet its financial commitments. CC - currently highly vulnerable,
C- currently vulnerable to nonpayment and is dependent upon favorable business,
financial, and economic conditions for it to meet its financial commitments. D -
has failed to pay one or more of its financial obligations (rated or unrated)
when it came due. A `D' rating is assigned when S&P believes that the default
will be a general default and that the obligor will fail to pay all or
substantially all of its obligations as they come due. S&P applies indicators
"+," no character, and "-" to its rating categories. The indicators show
relative standing within the major rating categories.
The following are excerpts from Moody's description of its bond ratings: Ba
- judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate, and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. B -
generally lack characteristics of a desirable investment. Assurance of interest
and principal payments or of maintenance of other terms of the contract over any
long period of time may be small. Caa - are of poor standing; such issues may be
in default or there may be present elements of danger with respect to principal
or interest. Ca - speculative in a high degree; often in default, or have other
marked shortcomings. C - lowest rated class of bonds; regarded as having
extremely poor prospects of ever attaining any real investment standing. Moody's
applies numerical indicators 1, 2 and 3 to rating categories. The modifier 1
indicates that the security is in the higher end of its rating category; 2
indicates a mid-range ranking; and 3 indicates a ranking towards the lower end
of the category.
E-1
<PAGE>
APPENDIX F
The following is a list of the ING Funds, which are managed by an affiliate of
ING Pilgrim Investments, 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
F-1
<PAGE>
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
F-2
<PAGE>
PART B
PILGRIM MUTUAL FUNDS
--------------------------------------------------------------------------------
Statement of Additional Information
________ ___, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Acquisition of the Assets and Liabilities of By and in Exchange for Shares of
Pilgrim High Total Return Fund Pilgrim High Yield Fund II
(a series of Pilgrim Mayflower Trust) (a series of Pilgrim Mutual Funds)
and 7337 E. Doubletree Ranch Road
Pilgrim High Total Return Fund II Scottsdale, Arizona 85258
(a series of Pilgrim Mayflower Trust)
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
</TABLE>
This Statement of Additional Information is available to the Shareholders of the
Pilgrim High Total Return Fund and Pilgrim High Total Return Fund II in
connection with a proposed transaction whereby all of the assets and liabilities
of the Pilgrim High Total Return Fund and the Pilgrim High Total Return Fund II,
each a series of Pilgrim Mayflower Trust, will be transferred to the Pilgrim
High Yield Fund II, a series of the Pilgrim Mutual Funds, in exchange for shares
of the Pilgrim High Yield Fund II.
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 respective Statements of Additional Information for the Pilgrim High
Yield Fund II, the Pilgrim High Total Return Fund and the Pilgrim High
Total Return Fund II Dated November 1, 2000, as filed on November 1, 2000.
2. The Financial Statements of the Pilgrim High Yield Fund II are included in
the Annual Report of the Pilgrim Mutual Funds Dated June 30, 2000, as filed
on September 7, 2000.
3. The Financial Statements of the Pilgrim High Total Return Fund are included
in the Semi-Annual Report of Pilgrim Mayflower Trust Dated April 30, 2000,
as filed on June 23, 2000.
4. The Financial Statements of the Pilgrim High Total Return Fund are included
in the Annual Report of Pilgrim Mayflower Trust Dated October 31, 1999, as
filed on December 16, 1999.
5. The Financial Statements of the Pilgrim High Total Return Fund II are
included in the Semi-Annual Report of Pilgrim Mayflower Trust Dated April
30, 2000, as filed on June 23, 2000.
6. The Financial Statements of the Pilgrim High Total Return Fund II are
included in the Annaul Report of Pilgrim Mayflower Trust Dated October 31,
1999, as filed on December 16, 1999.
This Statement of Additional Information is not a Prospectus. A Proxy
Statement/Prospectus Dated ____________, 2000 relating to the reorganizations of
the Pilgrim High Total Return Fund and the Pilgrim High Total Return Fund II may
be obtained, without charge, by writing to Pilgrim at 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 Prospectus/Proxy
Statement.
1
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
Shown below are financial statements for the Disappearing Funds, as of June
30, 2000, and PRO FORMA financial statements for the combined Fund, assuming the
Reorganizations are 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 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>
High Total High Total Pro Forma Pro Forma
High Yield II Return I Return II Adjustments Combined
------------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities at market value* $179,559,343 $ 196,601,102 $ 76,826,791 $ 452,929,526
Short-term investments at amortized cost 21,501,000 15,141,000 6,737,000 43,379,000
Cash 268 417 370 1,055
Receivables:
Fund shares sold 253,636 42,854 126,916 423,406
Dividends and interest 4,115,502 7,924,737 2,443,664 14,483,903
Investment securities sold 1,550,278 2,428,857 1,160,883 5,140,018
Other 1,624 232,238 84,868 376,440
Prepaid expenses 79,905 20,595 13,497 113,997
------------ ------------- ------------ -------------
Total Assets 207,061,556 222,391,800 87,393,989 516,847,345
------------ ------------- ------------ -------------
LIABILITIES:
Payable for investment securities
purchased 5,350,000 5,600,000 2,400,000 13,350,000
Payable for fund shares redeemed 1,115,672 533,555 315,339 1,964,566
Payable to affiliate 199,982 135,369 -- 335,351
Distributions payable 1,067,065 -- 52,984 1,120,049
Other accrued expenses and liabilities 119,786 320,358 104,050 544,194
------------ ------------- ------------ -------------
Total Liabilities 7,852,505 6,589,282 2,872,373 17,314,160
------------ ------------- ------------ -------------
NET ASSETS $199,209,051 $ 215,802,518 $ 84,521,616 $ 499,533,185
============ ============= ============ =============
NET ASSETS CONSIST OF:
Paid-in capital $235,891,108 $ 499,286,575 $179,033,497 $ 914,211,180
(Overdistributed) net investment income (256,953) (5,885,124) (992,981) (7,135,058)
Accumulated net realized (loss) on
investments and foreign currency
transactions (9,557,114) (161,550,074) (60,530,709) (231,637,897)
Net unrealized (depreciation) of
investments and other assets,
liabilities and forward contracts
denominated in foreign currencies (26,867,990) (116,048,859) (32,988,191) (175,905,040)
------------ ------------- ------------ -------------
Net Assets $199,209,051 $ 215,802,518 $ 84,521,616 $ 499,533,185
============ ============= ============ =============
CLASS A:
Net Assets $ 34,415,080 $ 49,085,570 $ 10,478,777 $ 93,979,427
Shares outstanding 3,185,343 17,562,989 3,048,419 (15,094,952)(A) 8,701,799
Net asset value and redemption
price per share $ 10.80 $ 2.79 $ 3.44 $ 10.80
Maximum offering price per share $ 11.34 $ 2.96 $ 3.65 $ 11.34
CLASS B:
Net Assets $103,246,586 $ 147,278,587 $ 61,147,391 $ 311,672,564
Shares outstanding 9,547,339 52,780,903 17,790,255 (51,286,622)(A) 28,831,875
Net asset value and redemption
price per share $ 10.81 $ 2.79 $ 3.44 $ 10.81
Maximum offering price per share $ 10.81 $ 2.79 $ 3.44 $ 10.81
CLASS C:
Net Assets $ 23,323,984 $ 19,438,361 $ 12,895,448 $ 55,657,793
Shares outstanding 2,156,686 6,926,049 3,747,530 (7,681,533)(A) 5,148,732
Net asset value and redemption
price per share $ 10.81 $ 2.81 $ 3.44 $ 10.81
Maximum offering price per share $ 10.81 $ 2.81 $ 3.44 $ 10.81
CLASS Q:
Net Assets $ 6,881,569 N/A N/A $ 6,881,569
Shares outstanding 635,888 N/A N/A 635,888
Net asset value and redemption
price per share $ 10.82 N/A N/A $ 10.82
Maximum offering price per share $ 10.82 N/A N/A $ 10.82
CLASS T:
Net Assets $ 31,341,832 N/A N/A $ 31,341,832
Shares outstanding 2,899,430 N/A N/A 2,899,430
Net asset value and redemption
price per share $ 10.81 N/A N/A $ 10.81
Maximum offering price per share $ 10.81 N/A N/A $ 10.81
*Cost of securities $206,427,333 $ 312,614,472 $109,792,762 $ 628,834,567
</TABLE>
(A) Reflects new shares issued, net of retired shares of the Fund.
2
<PAGE>
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
High Total High Total Pro Forma Pro Forma
High Yield II Return I Return II Adjustments Combined
------------- ------------- ------------ ------------- -------------
Twelve Months Twelve Months Twelve Months Twelve Months Twelve Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30, Ended June 30,
2000 2000 2000 2000 2000
------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends, net of foreign taxes $ 110,519 $ 3,816,443 $ 729,380 $ 4,656,342
Interest 12,270,565 35,452,604 15,537,875 63,261,044
Other -- 553,077 247,701 800,778
----------- ------------- ------------ ------------- -------------
Total investment income 12,381,084 39,822,124 16,514,956 -- 68,718,164
----------- ------------- ------------ ------------- -------------
EXPENSES:
Investment management fees 634,448 2,581,726 1,092,513 4,308,687
Distribution expenses --
Class A 60,360 238,049 54,286 58,912 (A) 411,607
Class B 570,886 2,388,481 1,025,962 3,985,329
Class C 193,491 336,263 249,767 779,521
Class Q 9,563 -- -- 9,563
Class T 53,509 -- -- 53,509
Transfer agent and registrar fees 168,720 428,965 198,983 796,668
Shareholder Reporting 48,679 60,867 9,702 119,248
Registration and filing fees 65,175 64,845 48,704 (56,775)(B) 121,949
Recordkeeping and pricing fees 23,058 -- -- 23,058
Professional fees 27,764 115,874 51,735 (83,805)(B) 111,568
Custodian fees 20,371 117,970 10,766 149,107
Shareholder servicing fees 5,385 95,970 52,984 154,339
Directors' fees 5,957 14,681 7,290 (21,971)(B) 5,957
Insurance 1,844 10,866 4,612 (15,478)(B) 1,844
Miscellaneous 86,579 76,553 28,739 191,871
Interest and credit facility fee 6,241 -- -- 6,241
Administrative fee -- 351,824 145,669 (497,493)(C) --
----------- ------------- ------------ ------------- -------------
Total expenses 1,982,030 6,882,934 2,981,712 (616,610) 11,230,066
----------- ------------- ------------ ------------- -------------
Less:
Waived and reimbursed fees 218,609 -- 785,781 (C) 1,004,390
----------- ------------- ------------ ------------- -------------
Net expenses 1,763,421 6,882,934 2,981,712 (1,402,391) 10,225,676
----------- ------------- ------------ ------------- -------------
Net investment income 10,617,663 32,939,190 13,533,244 1,402,391 58,492,488
----------- ------------- ------------ ------------- -------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS:
Net realized (loss) from:
Investments (5,014,882) (101,570,039) (8,778,387) (115,363,308)
Foreign currency transactions -- (592,244) (282,472) (874,716)
Net change in unrealized (depreciation) of:
Investments (2,564,989) (13,979,604) (7,294,790) (23,839,383)
----------- ------------- ------------ ------------- -------------
Net (loss) from investments and
foreign currencies (7,579,871) (116,141,887) (16,355,649) -- (140,077,407)
----------- ------------- ------------ ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 3,037,792 $ (83,202,697) $ (2,822,405) $ 1,402,391 $ (81,584,919)
=========== ============= ============ ============= =============
</TABLE>
(A) Reflects adjustment in expenses due to effects of current 12b-1 plan rate.
(B) Reflects adjustment in expenses due to elimination of duplicative services.
(C) Reflects adjustment to concur with Pilgrim expense structure.
3
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
As of June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH TOTAL HIGH TOTAL
HIGH YIELD II RETURN I RETURN II PRO FORMA
------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS: 79.93%
AEROSPACE/DEFENSE: 0.43%
3,996,000 4,000 4,000,000 Simula, Inc., 8.000%, due 05/01/04
AUTOMOTIVE: 0.01%
2,500,000 2,500,000 Safelite Glass Corp., 9.875%, due 12/15/06
BROADCASTING, RADIO, AND TELEVISION: 4.90%
5,300,000 3,000,000 8,300,000 Brill Media Company, LLC., 12.000%, due 12/15/07
5,946,400 5,946,400 & Capstar Broadcasting Partners, Inc., 12.000%, due 07/01/09
5,240,000 5,240,000 @ CD Radio, Inc., 0/15.000%, due 12/01/07
2,900,000 2,900,000 Capstar Broadcasting Partners, 9.250%, due 07/01/07
1,000,000 1,000,000 Chancellor Media Corp., 8.125%, due 12/15/07
2,800,000 2,800,000 Sinclair Broadcasting Group, Inc., 8.750%, due 12/15/07
1,250,000 1,250,000 Sinclair Broadcasting Group, Inc., 10.000%, due 09/30/05
3,750,000 1,000,000 4,750,000 Source Media, Inc., 12.000%, due 11/01/04
BUSINESS SERVICES: 2.62%
4,500,000 5,500,000 2,000,000 12,000,000 Allied Waste North America, Inc., 10.000%, 08/01/09
4,000,000 2,000,000 6,000,000 Comforce Operating, Inc., 12.000%, due 12/01/07
CABLE & DBS: 12.72%
3,000,000 3,000,000 @ Charter Communications Holdings, 0/9.920%%, due 04/01/11
8,000,000 2,500,000 10,500,000 @ Charter Communications Holdings, 0/11.750%, due 01/15/10
10,000,000 6,500,000 16,500,000 Charter Comm LLC, Cap1%, due 04/01/11
8,300,000 3,200,000 11,500,000 Diva Systems, 1.000%, due 03/01/08
4,500,000 4,500,000 Echostar DBS Corp., 9.250%, due 02/01/06
5,500,000 9,000,000 3,250,000 17,750,000 @ NTL, Inc., 0/9.750%, due 04/01/08
-- NTL, Inc., 0/9.750%, due 04/01/08
4,150,000 4,150,000 Ntl Incorporated, 1.000%, due 04/01/08
1,110,000 1,110,000 Pegasus Communications Corp., 9.625%, due 10/15/05
1,000,000 4,000,000 2,500,000 7,500,000 @@ Star Choice Communications, 13.000%, due 12/15/05
1,340,000 1,340,000 United Int'l Holdings, Inc., 10.750%, due 02/15/08
2,600,000 2,600,000 @@ @ United Pan Europe Communications, 0/12.500%, due 08/01/09
2,500,000 3,000,000 1,000,000 6,500,000 @@ United Pan Europe Communications, 13.750%, due 02/01/10
3,000,000 3,250,000 1,250,000 7,500,000 # XM Satellite Radio, Inc., 14.000%, due 03/15/10
COMMUNICATIONS - INTERNET: 7.08%
3,000,000 3,250,000 1,250,000 7,500,000 # Colo. Commmunication, 13.875%, due 03/15/10
4,000,000 4,250,000 1,500,000 9,750,000 # Exodus Communications, Inc., 11.625%, due 07/15/10
5,000,000 5,000,000 2,000,000 12,000,000 Globix Corp., 12.500%, due 02/01/10
3,000,000 3,000,000 Northpoint Communications Group, Inc., 12.875%, due 02/15/10
1,000,000 1,000,000 PSI Net, Inc., 11.000%, due 08/01/09
3,000,000 3,000,000 Rhythms Netconnections, Inc., 1.000%, due 05/15/08
8,267,451 8,267,451 Us Interaction, 12.000%, due 04/17/05
COMMUNICATIONS - WIRELESS: 8.49%
8,000,000 7,000,000 3,000,000 18,000,000 @ Alamosa Holdings, Inc., 0/12.975%, due 2/15/10
3,500,000 3,500,000 Arch Communications, Inc., 13.75%, due 04/15/08
2,250,000 5,750,000 8,000,000 @ Crown Castle Int'l Corp., 0/11.250%, due 08/01/11
7,500,000 9,500,000 6,000,000 23,000,000 @ Nextel Communications, Inc., 0/9.950%, due 02/15/08
3,000,000 3,000,000 @ Pinnacle Holdings, Inc., 0/10.000%, due 03/15/08
1,600,000 1,680,000 640,000 3,920,000 # @ Ubiquitel Operating Co., 0/14.000%, due 04/15/10
7,998,000 7,998,000 # @ Winstar Communications, Inc., 0/14.750%, due 04/15/10
COMMUNICATIONS - WIRELINE: 15.36%
5,500,000 6,000,000 3,000,000 14,500,000 @@ @ Call Net Enterprises, Inc., 0/12.975%, due 08/15/08
4,000,000 4,000,000 @ Century Communications Corp., 0.000%, due 01/15/08
1,780,000 1,780,000 @@ @ Completel Europe NV, 0/14.000%, due 02/15/09
8,000,000 8,000,000 Esprit Telecom Group, 11.50%, due 12/15/07
3,500,000 4,500,000 8,000,000 @@ Global Crossing Holdings, Ltd., 9.500%, due 11/15/09
1,535,000 1,535,000 Global Telesystems, Inc., 9.875%, due 02/15/05
2,000,000 2,000,000 @@ Globenet Communications Group, 13.000%, due 07/15/07
9,000,000 9,000,000 ICG Services, Inc., 10.000%, due 02/15/08
6,500,000 7,000,000 2,500,000 16,000,000 # Level 3 Communications, Inc., 12.875%, due 03/15/10
2,000,000 2,000,000 # MGC Communications, Inc., 13.000%, due 04/01/10
10,195,500 10,195,500 Metromedia Int'l Group, 10.500%, due 09/30/07
HIGH TOTAL HIGH TOTAL
HIGH YIELD II RETURN I RETURN II PRO FORMA
VALUE VALUE VALUE VALUE
----------- ----------- ----------- -----------
CORPORATE BONDS: 79.93%
AEROSPACE/DEFENSE: 0.43%
Simula, Inc., 8.000%, due 05/01/04 $ 2,097,900 $ 2,100 $ 2,100,000
----------- ----------- -----------
AUTOMOTIVE: 0.01%
Safelite Glass Corp., 9.875%, due 12/15/06 34,375 34,375
----------- -----------
BROADCASTING, RADIO, AND TELEVISION: 4.90%
Brill Media Company, LLC., 12.000%, due 12/15/07 3,471,500 1,965,000 5,436,500
Capstar Broadcasting Partners, Inc., 12.000%, due 07/01/09 6,882,958 6,882,958
CD Radio, Inc., 0/15.000%, due 12/01/07 $ 3,013,000 3,013,000
Capstar Broadcasting Partners, 9.250%, due 07/01/07 2,972,500 2,972,500
Chancellor Media Corp., 8.125%, due 12/15/07 1,011,250 1,011,250
Sinclair Broadcasting Group, Inc., 8.750%, due 12/15/07 2,478,000 2,478,000
Sinclair Broadcasting Group, Inc., 10.000%, due 09/30/05 1,200,000 1,200,000
Source Media, Inc., 12.000%, due 11/01/04 1,162,500 310,000 1,472,500
----------- ----------- ----------- -----------
10,674,750 11,516,958 2,275,000 24,466,708
----------- ----------- ----------- -----------
BUSINESS SERVICES: 2.62%
Allied Waste North America, Inc., 10.000%, 08/01/09 3,780,000 4,620,000 1,680,000 10,080,000
Comforce Operating, Inc., 12.000%, due 12/01/07 2,020,000 1,010,000 3,030,000
----------- ----------- ----------- -----------
3,780,000 6,640,000 2,690,000 13,110,000
----------- ----------- ----------- -----------
CABLE & DBS: 12.72%
Charter Communications Holdings, 0/9.920%%, due 04/01/11 1,710,000 1,710,000
Charter Communications Holdings, 0/11.750%, due 01/15/10 4,590,000 1,434,375 6,024,375
Charter Comm LLC, Cap1%, due 04/01/11 5,700,000 3,705,000 9,405,000
Diva Systems, 1.000%, due 03/01/08 3,984,000 1,536,000 5,520,000
Echostar DBS Corp., 9.250%, due 02/01/06 4,398,750 4,398,750
NTL, Inc., 0/9.750%, due 04/01/08 3,451,250 7,081,306 2,557,138 13,089,694
NTL, Inc., 0/9.750%, due 04/01/08 --
Ntl Incorporated, 1.000%, due 04/01/08 2,604,125 2,604,125
Pegasus Communications Corp., 9.625%, due 10/15/05 1,076,700 1,076,700
Star Choice Communications, 13.000%, due 12/15/05 1,031,250 4,125,000 2,578,125 7,734,375
United Int'l Holdings, Inc., 10.750%, due 02/15/08 944,700 944,700
United Pan Europe Communications, 0/12.500%, due 08/01/09 1,319,500 1,319,500
United Pan Europe Communications, 13.750%, due 02/01/10 1,187,500 1,425,000 475,000 3,087,500
XM Satellite Radio, Inc., 14.000%, due 03/15/10 2,655,000 2,876,250 1,106,250 6,637,500
----------- ----------- ----------- -----------
22,364,650 26,625,931 14,561,638 63,552,219
----------- ----------- ----------- -----------
COMMUNICATIONS - INTERNET: 7.08%
Colo. Commmunication, 13.875%, due 03/15/10 3,240,000 3,510,000 1,350,000 8,100,000
Exodus Communications, Inc., 11.625%, due 07/15/10 4,000,000 4,250,000 1,500,000 9,750,000
Globix Corp., 12.500%, due 02/01/10 4,125,000 4,125,000 1,650,000 9,900,000
Northpoint Communications Group, Inc., 12.875%, due 02/15/10 2,175,000 2,175,000
PSI Net, Inc., 11.000%, due 08/01/09 930,000 930,000
Rhythms Netconnections, Inc., 1.000%, due 05/15/08 1,200,000 1,200,000
Us Interaction, 12.000%, due 04/17/05 3,306,980 3,306,980
----------- ----------- ----------- -----------
15,670,000 15,191,980 4,500,000 35,361,980
----------- ----------- ----------- -----------
COMMUNICATIONS - WIRELESS: 8.49%
Alamosa Holdings, Inc., 0/12.975%, due 2/15/10 4,200,000 3,675,000 1,575,000 9,450,000
Arch Communications, Inc., 13.75%, due 04/15/08 2,835,000 2,835,000
Crown Castle Int'l Corp., 0/11.250%, due 08/01/11 1,417,500 3,622,500 5,040,000
Nextel Communications, Inc., 0/9.950%, due 02/15/08 5,531,250 7,006,250 4,425,000 16,962,500
Pinnacle Holdings, Inc., 0/10.000%, due 03/15/08 2,085,000 2,085,000
Ubiquitel Operating Co., 0/14.000%, due 04/15/10 934,000 980,700 373,600 2,288,300
Winstar Communications, Inc., 0/14.750%, due 04/15/10 3,759,060 3,759,060
----------- ----------- ----------- -----------
17,926,810 14,496,950 9,996,100 42,419,860
----------- ----------- ----------- -----------
COMMUNICATIONS - WIRELINE: 15.36%
Call Net Enterprises, Inc., 0/12.975%, due 08/15/08 2,145,000 2,340,000 1,170,000 5,655,000
Century Communications Corp., 0.000%, due 01/15/08 1,660,000 1,660,000
Completel Europe NV, 0/14.000%, due 02/15/09 898,900 898,900
Esprit Telecom Group, 11.50%, due 12/15/07 3,729,095 3,729,095
Global Crossing Holdings, Ltd., 9.500%, due 11/15/09 3,395,000 4,365,000 7,760,000
Global Telesystems, Inc., 9.875%, due 02/15/05 1,097,525 1,097,525
Globenet Communications Group, 13.000%, due 07/15/07 2,027,500 2,027,500
ICG Services, Inc., 10.000%, due 02/15/08 4,725,000 4,725,000
Level 3 Communications, Inc., 12.875%, due 03/15/10 3,591,250 3,867,500 1,381,250 8,840,000
MGC Communications, Inc., 13.000%, due 04/01/10 1,890,000 1,890,000
Metromedia Int'l Group, 10.500%, due 09/30/07 5,148,728 5,148,728
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
HIGH TOTAL HIGH TOTAL
HIGH YIELD II RETURN I RETURN II PRO FORMA
------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
5,000,000 5,000,000 3,000,000 13,000,000 @ Nextlink Communications, Inc., 0/12.250%, due 06/01/09
2,000,000 3,000,000 5,000,000 Northeast Optic Network, 12.750%, due 08/15/08
7,000,000 2,000,000 9,000,000 Poland Telecom Finance, 14.000%, due 12/01/07
3,000,000 2,000,000 5,000,000 RSL Communication, Ltd., 12.250%, due 11/15/06
17,300,000 17,300,000 Sa Telecommunications, 10.000%, due 08/15/06
5,000,000 5,000,000 @@ Versatel Telecommunications Int'l NV, 11.875%, due 07/15/09
3,000,000 3,000,000 2,000,000 8,000,000 @ Viatel, Inc., 0/12.500%, due 04/15/08
2,500,000 3,500,000 1,000,000 7,000,000 Viatel, Inc., 11.500%, due 03/15/09
2,000,000 2,000,000 Williams Communications Group, 10.875%, due 10/01/09
CONSUMER PRODUCTS: 2.26%
6,750,000 4,000,000 10,750,000 Decora Industries, Inc., 11.000%, due 05/01/05
5,000,000 2,000,000 1,000,000 8,000,000 Simmons Co., 10.250%, due 03/15/09
1,000,000 1,000,000 Styling Technology Corp., 10.875%, due 07/01/08
CONTAINER - PACKAGING: 0.20%
2,538,000 2,538,000 Indesco International, 9.75%, due 04/15/08
5,014,257 5,014,257 Packaging Resour13% 06/30/03
ELECTRONICS: 0.22%
3,000,000 3,000,000 Cooperative Computing, 9.000%, due 02/01/08
ENTERTAINMENT & LEISURE: 1.10%
4,600,000 4,600,000 @ Ascent Entertainment Group, Inc., 0/11.875%, due 12/15/04
2,000,000 2,000,000 Hollywood Entertainment Corp., 10.625%, due 08/15/04
FINANCE, INSURANCE, BANKING: 1.71%
2,000,000 2,000,000 Americo Life, Inc., 9.250%, due 06/01/05
3,750,000 2,000,000 1,000,000 6,750,000 MFN Financial Corp., 10.000%, due 03/23/01
500,000 500,000 @@ # Westways Funding II, Ltd., 22.125%, due 01/29/03
FOOD, BEVERAGE, TOBACCO: 5.16%
5,550,000 4,250,000 9,800,000 @@ Fage Dairy Industries SA, 9.000%, due 02/01/07
4,250,000 3,600,000 7,850,000 North Atlantic Trading, Inc., 11.000% due 06/15/04
1,950,000 4,500,000 1,750,000 8,200,000 Packaged Ice, Inc., 9.750%, due 02/01/05
4,500,000 350,000 4,850,000 Standard Commercial Corp., 8.875%, due 08/01/05
GAMING & LOTTERY: 4.0%
2,000,000 2,000,000 Autotote Corp., 10.875%, due 08/01/04
2,500,000 2,500,000 Coast Hotels & Casinos, Inc., 9.500%, due 04/01/09
5,000,000 5,000,000 Hollywood Casino Shreveport, 13.00%, due 08/01/06
1,500,000 1,500,000 # Park Place Entertainment Corp., 9.375%, due 02/15/07
4,000,000 4,000,000 Penn National Gaming, Inc., 10.625%, due 12/15/04
3,000,000 1,500,000 4,500,000 Venetian Casino/Las Vegas Sands, 10.000%, due 11/15/05
HEALTH CARE: 3.09%
650,000 650,000 Global Health Sciences, Inc., 11.000%, due 05/01/08
2,300,000 1,400,000 2,300,000 6,000,000 Health Insurance Plan of Greater NY, 11.250%, due 07/01/10
6,241,463 27,046,342 9,362,195 42,650,000 Intracel, 1.000%, due 03/20/10
184,074 797,275 275,985 1,257,334 Intracel, 11.500%, due 03/25/10
-- -- Intracel, 12.000%, due 08/25/03
HOTELS, MOTELS, AND INNS: 0.39%
2,000,000 2,000,000 Courtyard Marriott II, Ltd. Partnership, 10.750%, due 02/01/08
OIL & GAS: 2.90%
7,944,530 1,986,133 9,930,663 Hurricane Hydrocarbons, 16.000%, due 12/31/01
4,500,000 3,000,000 500,000 8,000,000 @@ Northern Offshore ASA, 10.000%, due 05/15/05
PAPER & FOREST PRODUCTS: 0.35%
2,250,000 2,250,000 @@ Doman Industries, Ltd., 8.750%, due 03/15/04
RESTAURANTS: 0.66%
2,500,000 3,000,000 5,500,000 Romacorp, Inc., 12.000%, due 07/01/06
RETAIL: 1.23%
7,800,000 1,000,000 8,800,000 Tom's Foods Inc., 10.500%, due 11/01/04
SHIPPING: 1.84%
3,750,000 10,000,000 3,700,000 17,450,000 @@ Equimar Shipholdings, Ltd., 9.875%, due 07/01/07
HIGH TOTAL HIGH TOTAL
HIGH YIELD II RETURN I RETURN II PRO FORMA
VALUE VALUE VALUE VALUE
----------- ----------- ----------- -----------
Nextlink Communications, Inc., 0/12.250%, due 06/01/09 3,100,000 3,100,000 1,860,000 8,060,000
Northeast Optic Network, 12.750%, due 08/15/08 1,920,000 2,880,000 4,800,000
Poland Telecom Finance, 14.000%, due 12/01/07 700,000 200,000 900,000
RSL Communication, Ltd., 12.250%, due 11/15/06 2,175,000 1,450,000 3,625,000
Sa Telecommunications, 10.000%, due 08/15/06 -- --
Versatel Telecommunications Int'l NV, 11.875%, due 07/15/09 4,950,000 4,950,000
Viatel, Inc., 0/12.500%, due 04/15/08 1,365,000 1,365,000 910,000 3,640,000
Viatel, Inc., 11.500%, due 03/15/09 1,912,500 2,677,500 765,000 5,355,000
Williams Communications Group, 10.875%, due 10/01/09 1,965,000 1,965,000
----------- ----------- ----------- -----------
34,722,675 31,387,823 10,616,250 76,726,748
----------- ----------- ----------- -----------
CONSUMER PRODUCTS: 2.26%
Decora Industries, Inc., 11.000%, due 05/01/05 2,548,125 1,510,000 4,058,125
Simmons Co., 10.250%, due 03/15/09 4,462,500 1,785,000 892,500 7,140,000
Styling Technology Corp., 10.875%, due 07/01/08 105,000 105,000
----------- ----------- ----------- -----------
4,567,500 4,333,125 2,402,500 11,303,125
----------- ----------- ----------- -----------
CONTAINER - PACKAGING: 0.20%
Indesco International, 9.75%, due 04/15/08 951,750 951,750
Packaging Resource 13% 06/30/03 50,143 50,143
----------- ----------- ----------- -----------
-- 50,143 951,750 1,001,893
----------- ----------- ----------- -----------
ELECTRONICS: 0.22%
Cooperative Computing, 9.000%, due 02/01/08 1,095,000 1,095,000
----------- ----------- ----------- -----------
ENTERTAINMENT & LEISURE: 1.10%
Ascent Entertainment Group, Inc., 0/11.875%, due 12/15/04 3,749,000 3,749,000
Hollywood Entertainment Corp., 10.625%, due 08/15/04 1,725,000 1,725,000
----------- ----------- ----------- -----------
5,474,000 -- -- 5,474,000
----------- ----------- ----------- -----------
FINANCE, INSURANCE, BANKING: 1.71%
Americo Life, Inc., 9.250%, due 06/01/05 1,890,000 1,890,000
MFN Financial Corp., 10.000%, due 03/23/01 3,543,750 1,890,000 945,000 6,378,750
Westways Funding II, Ltd., 22.125%, due 01/29/03 266,250 266,250
----------- ----------- ----------- -----------
5,700,000 1,890,000 945,000 8,535,000
----------- ----------- ----------- -----------
FOOD, BEVERAGE, TOBACCO: 5.16%
Fage Dairy Industries SA, 9.000%, due 02/01/07 4,467,750 3,421,250 7,889,000
North Atlantic Trading, Inc., 11.000% due 06/15/04 3,856,875 3,267,000 7,123,875
Packaged Ice, Inc., 9.750%, due 02/01/05 1,628,250 3,757,500 1,461,250 6,847,000
Standard Commercial Corp., 8.875%, due 08/01/05 3,622,500 281,750 3,904,250
----------- ----------- ----------- -----------
13,575,375 3,757,500 8,431,250 25,764,125
----------- ----------- ----------- -----------
GAMING & LOTTERY: 4.0%
Autotote Corp., 10.875%, due 08/01/04 2,090,000 2,090,000
Coast Hotels & Casinos, Inc., 9.500%, due 04/01/09 2,387,500 2,387,500
Hollywood Casino Shreveport, 13.00%, due 08/01/06 5,337,500 5,337,500
Park Place Entertainment Corp., 9.375%, due 02/15/07 1,507,500 1,507,500
Penn National Gaming, Inc., 10.625%, due 12/15/04 4,360,000 4,360,000
Venetian Casino/Las Vegas Sands, 10.000%, due 11/15/05 2,850,000 1,425,000 4,275,000
----------- ----------- ----------- -----------
10,345,000 8,187,500 1,425,000 19,957,500
----------- ----------- ----------- -----------
HEALTH CARE: 3.09%
Global Health Sciences, Inc., 11.000%, due 05/01/08 238,875 238,875
Health Insurance Plan of Greater NY, 11.250%, due 07/01/10 1,426,000 868,000 1,426,000 3,720,000
Intracel, 1.000%, due 03/20/10 1,497,951 6,491,122 2,246,927 10,236,000
Intracel, 11.500%, due 03/25/10 184,074 797,275 275,984 1,257,333
Intracel, 12.000%, due 08/25/03 -- --
----------- ----------- ----------- -----------
3,346,900 8,156,397 3,948,911 15,452,208
----------- ----------- ----------- -----------
HOTELS, MOTELS, AND INNS: 0.39%
Courtyard Marriott II, Ltd. Partnership, 10.750%, due 02/01/08 1,965,000 1,965,000
----------- ----------- ----------- -----------
OIL & GAS: 2.90%
Hurricane Hydrocarbons, 16.000%, due 12/31/01 7,577,095 1,894,274 9,471,369
Northern Offshore ASA, 10.000%, due 05/15/05 2,812,500 1,875,000 312,500 5,000,000
----------- ----------- ----------- -----------
2,812,500 9,452,095 2,206,774 14,471,369
----------- ----------- ----------- -----------
PAPER & FOREST PRODUCTS: 0.35%
Doman Industries, Ltd., 8.750%, due 03/15/04 1,755,000 1,755,000
----------- ----------- ----------- -----------
RESTAURANTS: 0.66%
Romacorp, Inc., 12.000%, due 07/01/06 1,500,000 1,800,000 3,300,000
----------- ----------- ----------- -----------
RETAIL: 1.23%
Tom's Foods Inc., 10.500%, due 11/01/04 5,460,000 700,000 6,160,000
----------- ----------- ----------- -----------
-- 5,460,000 700,000 6,160,000
----------- ----------- ----------- -----------
SHIPPING: 1.84%
Equimar Shipholdings, Ltd., 9.875%, due 07/01/07 738,000 1,968,000 728,160 3,434,160
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
HIGH TOTAL HIGH TOTAL
HIGH YIELD II RETURN I RETURN II PRO FORMA
------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
6,100,000 900,000 7,000,000 Ultrapetrol(Bahamas) Ltd., 10.5%, due 04/01/08
STEEL: 0.32%
4,500,000 4,500,000 GS Technologies Operations, Inc., 12.250%, due 10/01/05
SUPERMARKET: 1.11%
5,000,000 5,000,000 Fleming Companies, Inc., 10.500%, due 12/01/04
4,250,000 4,250,000 Richmont Marketing Specialists, 10.125%, due 12/15/07
TRANSPORTATION (AIR, BUS, RAIL): 1.78%
3,000,000 3,500,000 6,500,000 Amtran, Inc., 10.500%, due 08/01/04
2,000,000 2,000,000 Atlas Air, Inc., 9.250%, due 04/15/08
1,000,000 1,000,000 Railworks Corp., 11.500%, due 04/15/09
TOTAL CORPORATE BONDS (COST $195,348,379,
$240,843,937, $96,946,034, $533,138,350)
COMMON STOCK: 2.03%
Shares
------
CABLE & DBS: 0.21%
38,600 24,124 62,724 Canadian Satellite
COMMUNICATIONS - INTERNET: 0.65%
19,008 70,400 28,160 117,568 @ Globix Corp.
48,746 48,746 E.Spire CommunicatioCOM
(17,500) (17,500) Globix CorpCOM
COMMUNICATIONS - WIRELINE: 1.10%
89,000 89,000 @@ @ Completel Europe NV
10,500 (7,000) 3,500 @ Global Crossing, Ltd.
37,790 37,790 GST Telecommunications
23,340 23,340 @ Nextlink Communications, Inc.
3,684 3,684 RCN Corp
COMMUNICATIONS - WIRELESS: 0.03%
410,929 72,516 483,445 International Wire Holding Co.
ENGINEERING R&D: 0.00%
24,500 24,500 Kaiser Group Internal
HEALTH CARE: 0.01%
801 801 General Healthcare
16,926 140,282 29,069 186,277 @ Intracel Corp.
MANUFACTURING: 0.02%
2,100 250 2,350 Jordan Telecomunications
RESTAURANTS: 0.01%
108,839 13,012 121,851 International Fast Food
STEEL: 0.00%
5,010 5,010 Gulf States Steel, Inc.
TOTAL COMMON STOCK (COST $5,478,954,
$13,967,375, $2,414,787, 21,861,116)
PREFERRED STOCK: 7.95%
BROADCASTING, RADIO, AND TELEVISION: 2.15%
100 100 Paxson Communications, JR Exchangeable
101,630 5,310 106,940 Paxson Communications, Prd Exchangeable
COMMUNICATIONS - WIRELINE: 2.40%
41,287 30,966 21,036 93,289 Adelphia Business Solutions
12,000 12,000 Global Crossing, Ltd.
4,000 4,000 PFD Conversion
CONSUMER PRODUCTS: 0.21%
100,000 100,000 Commemorative
HIGH TOTAL HIGH TOTAL
HIGH YIELD II RETURN I RETURN II PRO FORMA
VALUE VALUE VALUE VALUE
----------- ----------- ----------- -----------
Ultrapetrol(Bahamas) Ltd., 10.5%, due 04/01/08 5,032,500 742,500 5,775,000
----------- ----------- ----------- -----------
738,000 7,000,500 1,470,660 9,209,160
----------- ----------- ----------- -----------
STEEL: 0.32%
GS Technologies Operations, Inc., 12.250%, due 10/01/05 1,603,125 1,603,125
----------- ----------- ----------- -----------
1,603,125 -- -- 1,603,125
----------- ----------- ----------- -----------
SUPERMARKET: 1.11%
Fleming Companies, Inc., 10.500%, due 12/01/04 4,500,000 4,500,000
Richmont Marketing Specialists, 10.125%, due 12/15/07 1,062,500 1,062,500
----------- ----------- ----------- -----------
5,562,500 -- -- 5,562,500
----------- ----------- ----------- -----------
TRANSPORTATION (AIR, BUS, RAIL): 1.78%
Amtran, Inc., 10.500%, due 08/01/04 2,782,500 3,246,250 6,028,750
Atlas Air, Inc., 9.250%, due 04/15/08 1,910,000 1,910,000
Railworks Corp., 11.500%, due 04/15/09 945,000 945,000
----------- ----------- ----------- -----------
5,637,500 3,246,250 -- 8,883,750
----------- ----------- ----------- -----------
TOTAL CORPORATE BONDS (COST $195,348,379,
$240,843,937, $96,946,034, $533,138,350) 169,721,285 159,491,052 70,052,308 399,264,645
----------- ----------- ----------- -----------
COMMON STOCK: 2.03%
CABLE & DBS: 0.21%
Canadian Satellite 625,946 391,200 1,017,146
----------- ----------- ----------- -----------
COMMUNICATIONS - INTERNET: 0.65%
Globix Corp. 557,172 2,063,600 825,440 3,446,212
E.Spire CommunicatioCOM 329,036 329,036
Globix CorpCOM (512,969) (512,969)
----------- ----------- ----------- -----------
557,172 1,879,667 825,440 3,262,279
----------- ----------- ----------- -----------
COMMUNICATIONS - WIRELINE: 1.10%
Completel Europe NV 907,800 907,800
Global Crossing, Ltd. 2,337,563 (205,188) 2,132,375
GST Telecommunications 36,019 36,019
Nextlink Communications, Inc. 2,301,908 2,301,908
RCN Corp 93,482 93,482
----------- ----------- ----------- -----------
5,547,271 36,019 (111,706) 5,471,584
----------- ----------- ----------- -----------
COMMUNICATIONS - WIRELESS: 0.03%
International Wire Holding Co. 106,842 18,854 125,696
----------- ----------- ----------- -----------
ENGINEERING R&D: 0.00%
Kaiser Group Internal 956 956
----------- ----------- ----------- -----------
HEALTH CARE: 0.01%
General Healthcare --
Intracel Corp. 4,232 35,071 7,267 46,570
----------- ----------- ----------- -----------
4,232 35,071 7,267 46,570
----------- ----------- ----------- -----------
MANUFACTURING: 0.02%
Jordan Telecomunications 109,200 13,000 122,200
----------- ----------- ----------- -----------
RESTAURANTS: 0.01%
International Fast Food 44,624 5,335 49,959
----------- ----------- ----------- -----------
STEEL: 0.00%
Gulf States Steel, Inc. 50 50
----------- ----------- ----------- -----------
TOTAL COMMON STOCK (COST $5,478,954,
$13,967,375, $2,414,787, 21,861,116) 6,108,675 2,838,375 1,149,390 10,096,440
----------- ----------- ----------- -----------
PREFERRED STOCK: 7.95%
BROADCASTING, RADIO, AND TELEVISION: 2.15%
Paxson Communications, JR Exchangeable 9,625 9,625
Paxson Communications, Prd Exchangeable 10,188,408 532,328 10,720,736
----------- ----------- ----------- -----------
-- 10,188,408 541,953 10,730,361
----------- ----------- ----------- -----------
COMMUNICATIONS - WIRELINE: 2.40%
Adelphia Business Solutions 3,726,195 2,794,646 1,898,496 8,419,337
Global Crossing, Ltd. 2,671,500 2,671,500
PFD Conversion 890,500 890,500
----------- ----------- ----------- -----------
3,726,195 5,466,146 2,788,996 11,981,337
----------- ----------- ----------- -----------
CONSUMER PRODUCTS: 0.21%
Commemorative 1,025,000 1,025,000
----------- ----------- ----------- -----------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
HIGH TOTAL HIGH TOTAL
HIGH YIELD II RETURN I RETURN II PRO FORMA
------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
FINANCE, INSURANCE, BANKING: 0.00%
19,000 13,500 32,500 Superior National Capital Trust I
FOOD, BEVERAGE, TOBACCO: 3.01%
795,413 76,379 871,792 North Atlantic Trading
MANUFACTURING: 0.00%
12,060 12,060 Clark Material Handling
METALS & MINING: 0.14%
10,000 10,000 Int'l Utility Structures
285 285 Int'l Utility Structures
RESTAURANTS: 0.04%
129,423 15,460 144,883 International Fast Food
TOTAL PREFERRED STOCK ($5,600,000, $57,025,243,
$10,280,551, $72,905,794)
WARRANTS: 0.78%
BUSINESS SERVICE: 0.00%
71,825 21,125 92,950 Comforce Corp.
CABLE & DBS: 0.10%
24,900 9,600 34,500 Diva Systems Corp
COMMUNICATIONS - INTERNET: 0.00%
3,833 3,833 US Interactive
1,000 7,795 505 9,300 @ Unifi Communications, Inc.
COMMUNICATIONS - WIRELESS: 0.00%
10,000 10,000 Cellnet Data Systems
177,000 177,000 Geotex Communications
8,500 8,500 International Wire Holding Co.
1,500 1,500 International Wireless
COMMUNICATIONS - WIRELINE: 0.40%
10,200 10,200 Adelphia Business Solutions
6,600 6,600 ICG Communications
9,500 9,500 McCaw International, Ltd.
14,000 14,000 PLD Telekom
7,000 2,000 9,000 Poland Telecom Finance
FOOD, BEVERAGE, TOBACCO: 0.28%
5,550 550 6,100 North Atlantic Trading
6,350 1,000 7,350 Packaged Ice
14,350 5 14,355 Packaged Ice, Inc.
MANUFACTURING: 0.00%
1,262 1,262 Roller Bearing
OIL & GAS: 0.00%
1,500,000 1,500,000 @ Mexico (UTD Mex ST)
RESEARCH AND DEVELOPMENT: 0.00%
5,000 5,000 WT EXP 15MAR07
RETAIL: 0.00%
4,999 23,632 28,631 @ Dairy Mart Convenience Stores
100 100 @ Electronic Retailing Systems Int'l
STEEL: 0.00%
7,000 7,000 Bar Technologies, Inc.
12,500 12,500 Sheffield Steel Corp.
TRANSPORTATION: 0.00%
2,000 2,000 CHC Helicopter Corp.
TOTAL WARRANTS ($0, $777,916,
$151,389, $929,305)
TOTAL LONG-TERM INVESTMENTS (COST $206,427,333,
$312,614,471, $109,792,761, $628,834,565)
SHORT-TERM INVESTMENTS: 8.68%
REPURCHASE AGREEMENT: 8.68%
State Stree Repurchase Agreement, 6.200% due 07/03/00
(Collateralized by $4,605,000 U.S. Treasury Notes, 6.375%
21,501,000 21,501,000 Due 11/15/04 Market Value $4,735,552)
15,141,000 15,141,000 State Street Repurchase, Agreement, 6.20% due 07/03/00
6,737,000 6,737,000 State Street Repurchase, Agreement, 6.20% due 07/03/00
TOTAL SHORT-TERM INVESTMENTS (COST $4,639,000, $15,141,000,
$6,737,000, $26,517,000)
TOTAL INVESTMENTS IN SECURITIES (COST $211,066,333,
$327,755,471, $116,529,761, $655,351,565)
OTHER ASSETS AND LIABILITIES-NET
NET ASSETS
HIGH TOTAL HIGH TOTAL
HIGH YIELD II RETURN I RETURN II PRO FORMA
VALUE VALUE VALUE VALUE
----------- ----------- ----------- -----------
FINANCE, INSURANCE, BANKING: 0.00%
Superior National Capital Trust I 190 135 325
----------- ----------- ----------- -----------
FOOD, BEVERAGE, TOBACCO: 3.01%
North Atlantic Trading 13,720,878 1,317,531 15,038,409
----------- ----------- ----------- -----------
MANUFACTURING: 0.00%
Clark Material Handling -- --
----------- ----------- ----------- -----------
METALS & MINING: 0.14%
Int'l Utility Structures 700,000 700,000
Int'l Utility Structures 20,591 20,591
----------- ----------- ----------- -----------
-- -- 720,591 720,591
----------- ----------- ----------- -----------
RESTAURANTS: 0.04%
International Fast Food 195,429 23,345 218,774
----------- ----------- ----------- -----------
TOTAL PREFERRED STOCK (COST $5,600,000, $57,025,243,
$10,280,551, $72,905,794) 3,726,385 30,595,861 5,392,551 39,714,797
----------- ----------- ----------- -----------
WARRANTS: 0.78%
BUSINESS SERVICE: 0.00%
Comforce Corp. 17,956 23,237 5,281
----------- ----------- ----------- -----------
CABLE & DBS: 0.10%
Diva Systems Corp 354,825 136,800 491,625
----------- ----------- ----------- -----------
COMMUNICATIONS - INTERNET: 0.00%
US Interactive 38 38
Unifi Communications, Inc. -- -- -- --
----------- ----------- ----------- -----------
-- 38 -- 38
----------- ----------- ----------- -----------
COMMUNICATIONS - WIRELESS: 0.00%
Cellnet Data Systems 2,600 2,600
Geotex Communications 1,770 1,770
International Wire Holding Co. 85 85
International Wireless 15 15
----------- ----------- ----------- -----------
-- 4,455 15 4,470
----------- ----------- ----------- -----------
COMMUNICATIONS - WIRELINE: 0.40%
Adelphia Business Solutions 1,787,550 1,787,550
ICG Communications 93,088 93,088
McCaw International, Ltd. 108,632 108,632
PLD Telekom 420 420
Poland Telecom Finance 70 20 90
----------- ----------- ----------- -----------
-- 1,989,760 20 1,989,780
----------- ----------- ----------- -----------
FOOD, BEVERAGE, TOBACCO: 0.28%
North Atlantic Trading 555,000 55,000 610,000
Packaged Ice 223,838 35,250 259,088
Packaged Ice, Inc. 505,838 176 506,014
----------- ----------- ----------- -----------
-- 1,284,676 90,426 1,375,102
----------- ----------- ----------- -----------
MANUFACTURING: 0.00%
Roller Bearing -- --
----------- ----------- ----------- -----------
OIL & GAS: 0.00%
Mexico (UTD Mex ST) -- --
----------- ----------- ----------- -----------
RESEARCH AND DEVELOPMENT: 0.00%
WT EXP 15MAR07 50 50
----------- ----------- ----------- -----------
RETAIL: 0.00%
Dairy Mart Convenience Stores 2,998 14,179 17,177
Electronic Retailing Systems Int'l -- --
----------- ----------- ----------- -----------
2,998 14,179 -- 17,177
----------- ----------- ----------- -----------
STEEL: 0.00%
Bar Technologies, Inc. 7,875 7,875
Sheffield Steel Corp. -- --
----------- ----------- ----------- -----------
-- 7,875 -- 7,875
----------- ----------- ----------- -----------
TRANSPORTATION: 0.00%
CHC Helicopter Corp. 2,000 2,000
----------- ----------- ----------- -----------
TOTAL WARRANTS (COST $0, $777,916,
$151,389, $929,305) 2,998 3,675,814 232,542 3,911,355
----------- ----------- ----------- -----------
TOTAL LONG-TERM INVESTMENTS (COST $206,427,333,
$312,614,471, $109,792,761, $628,834,565) 179,559,343 196,601,102 76,826,791 452,987,237
----------- ----------- ----------- -----------
SHORT-TERM INVESTMENTS: 8.68%
REPURCHASE AGREEMENT: 8.68%
State Stree Repurchase Agreement, 6.200% due 07/03/00
(Collateralized by $4,605,000 U.S. Treasury Notes, 6.375%
Due 11/15/04 Market Value $4,735,552) 21,501,000 21,501,000
State Street Repurchase, Agreement, 6.20% due 07/03/00 15,141,000 15,141,000
State Street Repurchase, Agreement, 6.20% due 07/03/00 6,737,000 6,737,000
----------- ----------- ----------- -----------
TOTAL SHORT-TERM INVESTMENTS (COST $4,639,000, $15,141,000,
$6,737,000, $26,517,000) 21,501,000 15,141,000 6,737,000 43,379,000
----------- ----------- ----------- -----------
TOTAL INVESTMENTS IN SECURITIES (COST $211,066,333,
$327,755,471, $116,529,761, $655,351,565) 99.37% 201,060,343 211,742,102 83,563,791 496,366,237
Other Assets and Liabilities-Net 0.63% (1,851,292) 4,060,417 957,824 3,166,949
------ ----------- ----------- ----------- -----------
Net Assets 100.00% 199,209,051 215,802,519 84,521,615 499,533,186
====== =========== =========== =========== ===========
</TABLE>
@ Non-income producing security.
# Securities with purchases 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.
7
<PAGE>
PROFORMA I: Proposed Reorganization of High Total Return Fund into High Yield
Fund II (assumes reorganization of High Total Return Fund II does not occur) (1)
<TABLE>
<CAPTION>
Distribution
and Shareholder Total Fund
Management Servicing (12b-1) Other Operating Fee Waiver Net Fund
Fees Fees (2) Expenses Expenses by Adviser(3) Expenses
---------- ---------------- -------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A
High Total Return Fund 0.60% 0.30% 0.38% 1.28% 0.00% 1.28%
High Yield Fund II 0.60% 0.35% 0.44% 1.39% -0.21% 1.18%
Pro Forma 0.60% 0.35% 0.30% 1.25% -0.07% 1.18%
Class B
High Total Return Fund 0.60% 1.00% 0.38% 1.98% 0.00% 1.98%
High Yield Fund II 0.60% 1.00% 0.44% 2.04% -0.21% 1.83%
Pro Forma 0.60% 1.00% 0.30% 1.90% -0.07% 1.83%
Class C
High Total Return Fund 0.60% 1.00% 0.38% 1.98% 0.00% 1.98%
High Yield Fund II 0.60% 1.00% 0.44% 2.04% -0.21% 1.83%
Pro Forma 0.60% 1.00% 0.30% 1.90% -0.07% 1.83%
</TABLE>
(1) The fiscal year end for the Disappearing Fund is October 31. The fiscal year
end for the High Yield Fund II is June 30. Expenses of the Funds are estimated
based upon expenses incurred by each Fund for the 12 month period ended June 30,
2000. Pro forma expenses are adjusted for anticipated 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) ING Pilgrim Investments has entered into an expense limitation agreement
with High Yield Fund II under which it will limit expenses of the Fund(excluding
interest, taxes, brokerage and extraordinary expenses) to 1.10%, 1.75% and 1.75%
for Classes A, B and C, respectively. ING Pilgrim Investments has agreed that
the expense limitations shown in the table will apply to Pilgrim High Yield Fund
II until October 31, 2001. For the Disappearing Fund, the management fee shown
reflects a fee agreement effective July 26, 2000, under which the High Total
Return Fund pays a management fee of 0.60%.
8
<PAGE>
PROFORMA II: Proposed Reorganization of High Total Return Fund II into High
Yield Fund II (assumes reorganization of High Total Return Fund does not occur)
(1)
<TABLE>
<CAPTION>
Distribution
and Shareholder Total Fund
Management Servicing (12b-1) Other Operating Fee Waiver Net Fund
Fees Fees (2) Expenses Expenses by Adviser(3) Expenses
---------- ---------------- -------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A
High Total Return Fund II 0.60% 0.30% 0.39% 1.29% 0.00% 1.29%
High Yield Fund II 0.60% 0.35% 0.44% 1.39% -0.21% 1.18%
Pro Forma 0.60% 0.35% 0.30% 1.25% -0.07% 1.18%
Class B
High Total Return Fund II 0.60% 1.00% 0.39% 1.99% 0.00% 1.99%
High Yield Fund II 0.60% 1.00% 0.44% 2.04% -0.21% 1.83%
Pro Forma 0.60% 1.00% 0.30% 1.90% -0.07% 1.83%
Class C
High Total Return Fund II 0.60% 1.00% 0.39% 1.99% 0.00% 1.99%
High Yield Fund II 0.60% 1.00% 0.44% 2.04% -0.21% 1.83%
Pro Forma 0.60% 1.00% 0.30% 1.90% -0.07% 1.83%
</TABLE>
(1) The fiscal year end for the Disappearing Fund is October 31. The fiscal year
end for the High Yield Fund II is June 30. Expenses of the Funds are estimated
based upon expenses incurred by each Fund for the 12 month period ended June 30,
2000. Pro forma expenses are adjusted for anticipated 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) ING Pilgrim Investments has entered into an expense limitation agreement
with High Yield Fund II under which it will limit expenses of the Fund(excluding
interest, taxes, brokerage and extraordinary expenses) to 1.10%, 1.75% and 1.75%
for Classes A, B and C, respectively. ING Pilgrim Investments has agreed that
the expense limitations shown in the table will apply to Pilgrim High Yield Fund
II until October 31, 2001. For the Disappearing Fund, the management fee shown
reflects a fee agreement effective July 26, 2000, under which the High Total
Return Fund II pays a management fee of 0.60%.
9
<PAGE>
PROFORMA III: Proposed Reorganization of High Total Return Fund and High Total
Return Fund II into High Yield Fund II.(1)
<TABLE>
<CAPTION>
Distribution
and Shareholder Total Fund
Management Servicing (12b-1) Other Operating Fee Waiver Net Fund
Fees Fees (2) Expenses Expenses by Adviser(3) Expenses
---------- ---------------- -------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A
High Total Return Fund 0.60% 0.30% 0.38% 1.28% 0.00% 1.28%
High Total Return Fund II 0.60% 0.30% 0.39% 1.29% 0.00% 1.29%
High Yield Fund II 0.60% 0.35% 0.44% 1.39% -0.21% 1.18%
Pro Forma 0.60% 0.35% 0.28% 1.23% -0.05% 1.18%
Class B
High Total Return Fund 0.60% 1.00% 0.38% 1.98% 0.00% 1.98%
High Total Return Fund II 0.60% 1.00% 0.39% 1.99% 0.00% 1.99%
High Yield Fund II 0.60% 1.00% 0.44% 2.04% -0.21% 1.83%
Pro Forma 0.60% 1.00% 0.28% 1.88% -0.05% 1.83%
Class C
High Total Return Fund 0.60% 1.00% 0.38% 1.98% 0.00% 1.98%
High Total Return Fund II 0.60% 1.00% 0.39% 1.99% 0.00% 1.99%
High Yield Fund II 0.60% 1.00% 0.44% 2.04% -0.21% 1.83%
Pro Forma 0.60% 1.00% 0.28% 1.88% -0.05% 1.83%
</TABLE>
(1) The fiscal year end for the Disappearing Funds is October 31. The fiscal
year end for the High Yield Fund II is June 30. Expenses of the Funds are
estimated based upon expenses incurred by each Fund for the 12 month period
ended June 30, 2000. Pro forma expenses are adjusted for anticipated 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) ING Pilgrim Investments has entered into an expense limitation agreement
with High Yield Fund II under which it will limit expenses of the Fund(excluding
interest, taxes, brokerage and extraordinary expenses) to 1.10%, 1.75% and 1.75%
for Classes A, B and C, respectively. ING Pilgrim Investments has agreed that
the expense limitations shown in the table will apply to Pilgrim High Yield Fund
II until October 31, 2001. For the Disappearing Funds, the management fees shown
reflect a fee agreement effective July 26, 2000, under which the High Total
Return Fund and the High Total Return Fund II each pays a management fee of
0.60%.
10
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF COMBINATION:
On November 2, 2000, the Boards of Pilgrim High Yield II Fund ("High
Yield II Fund"), Pilgrim High Total Return I Fund ("High Total Return I Fund")
and Pilgrim High Total Return II Fund ("High Total Return II Fund"), approved an
Agreement and Plan of Reorganization (the "Plan") whereby, subject to approval
by the shareholders of High Total Return I Fund and High Total Return II Fund,
High Yield II Fund will acquire all of the assets of the High Total Return I
Fund and High Total Return II Fund subject to the liabilities of such Funds, in
exchange for a number of shares equal to the pro rata net assets of shares of
the High Yield II 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 High Yield II Fund, High Total Return I Fund and High Total Return
II Fund at June 30, 2000. The unaudited pro forma statement of operations
reflects the results of operations of High Yield II Fund, High Total Return I
Fund and High Total Return II 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
High Yield II Fund, High Total Return I Fund and High Total Return II 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 High Yield II Fund for pre-combination periods will not be
restated.
The unaudited pro forma portfolio of investments, and unaudited
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. Debt securities in
High Yield II Fund are valued at bid prices obtained from independent services
or from one or more dealers making markets in the securities. U.S. Government
obligations are valued by using market quotations or independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. 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
High Total Return I Fund and High Total Return II Fund by High Yield II Fund as
of June 30, 2000. The number of additional shares issued was calculated by
dividing the net asset value of each Class of High Total Return I Fund and High
Total Return II Fund by the respective Class net asset value per share of High
Yield II Fund.
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. High
Total Return I Fund and High Total Return II Fund expenses were adjusted
assuming High Yield II Fund's fee structure was in effect for the year ended
June 30, 2000.
11
<PAGE>
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. ING Pilgrim Investments, Investment Adviser to
the Funds, will bear half the cost of the Reorganization. The Funds will bear
the other half of the expenses relating to the proposed Reorganization.
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 Board of Directors intends to offset any net capital gains with
any available capital loss carryforward until each carryforward has been fully
utilized or expires. The amount of capital loss carryforward, which may offset
highy Yield Fund II's capital gains in any given year may be limited as a result
of previous reorganizations. In addition, no capital gain distribution shall be
made until the capital loss carryforward has been fully utilized or expires.
12
<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)
(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)
1
<PAGE>
(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) (A) Form of Agreement and Plan of Reorganization between Pilgrim Mayflower
Trust, on behalf of Pilgrim High Total Return Fund, and Pilgrim Mutual
Funds, on behalf of Pilgrim High Yield Fund II.
(B) Form of Agreement and Plan of Reorganization between Pilgrim Mayflower
Trust, on behalf of Pilgrim High Total Return Fund II, and Pilgrim
Mutual Funds, on behalf of Pilgrim High Yield Fund II.
(5) See Exhibits (1) and (2)
(6) (A) Form of Investment Management Agreement between the Trust and Pilgrim
Investments, Inc.(p)
(B) Form of Portfolio Management Agreement between Pilgrim Investments, Inc.
and Nicholas-Applegate Capital Management(l)
(7) Form of Underwriting Agreement between the Trust and Pilgrim Securities,
Inc.(q)
(8) Not Applicable
(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)
2
<PAGE>
(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)
(11) Form of Opinion and Consent of Counsel
(12) Forms of Opinions and Consents 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)
(I) Form of Multiple Class Plan pursuant to Rule 18f-3 (n)
(14) Consents of Independent Auditors
(15) Not Applicable
(16) Filed herewith
(17) Not Applicable
----------
(a) Filed as an exhibit to Post-Effective Amendment No. 29 to Registrant's Form
N-1A Registration Statement on May 3, 1996 and incorporated herein by
reference.
(b) Filed as an exhibit to Post-Effective Amendment No. 30 to the Registrant's
Form N-1A Registration Statement on June 4, 1996 and incorporated herein by
reference.
(c) 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.
3
<PAGE>
(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.
(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 30, 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.
4
<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 30th day of November, 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 November 30, 2000
------------------------
John G. Turner*
Trustee and President November 30, 2000
------------------------ (Chief Executive Officer)
Robert W. Stallings*
Senior Vice President and November 30, 2000
------------------------ Principal Financial Officer
Michael J. Roland* (Principal Financial Officer)
Trustee November 30, 2000
------------------------
Robert B. Goode, Jr.*
Trustee November 30, 2000
------------------------
Al Burton*
Trustee November 30, 2000
------------------------
Jock Patton*
Trustee November 30, 2000
------------------------
John R. Smith*
Trustee November 30, 2000
------------------------
David W.C. Putnam*
5
<PAGE>
Trustee November 30, 2000
------------------------
Walter H. May*
Trustee November 30, 2000
------------------------
Paul S. Doherty*
Trustee November 30, 2000
------------------------
Alan L. Gosule*
Trustee November 30, 2000
------------------------
David W. Wallace*
* By: /s/ James M. Hennessy
James M. Hennessy
Attorney-in-Fact**
----------
** Executed pursuant to powers of attorney filed herewith.
6
<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
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
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
8
<PAGE>
EXHIBIT INDEX
(4) (A) Form of Agreement and Plan of Reorganization between Pilgrim Mayflower
Trust on behalf of Pilgrim High Total Return Fund, and Pilgrim Mutual
Funds, on behalf of Pilgrim High Yield Fund II.
(B) Form of Agreement and Plan of Reorganization between Pilgrim Mayflower
Trust, on behalf of Pilgrim High Total Return Fund II, and Pilgrim
Mutual Funds, on behalf of Pilgrim High Yield Fund II.
(11) Form of Opinion and Consent of Counsel
(12) Forms of Opinions and Consents of Counsel supporting tax matters and
consequences
(14) Consents of Independent Auditors
<PAGE>
PILGRIM HIGH TOTAL RETURN FUND
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS ON ________ ___, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoint(s) Robert W. Stallings and James M. Hennessy or
any one or more of them, proxies, with full power of substitution, to vote all
shares of the Pilgrim High Total Return Fund (the "Fund") which the undersigned
is entitled to vote at the Special Meeting of Shareholders of the Fund to be
held at the offices of the Fund at 7337 E. Doubletree Ranch Road, Scottsdale,
Arizona 85258 on ________ ___, 2001 at ______ a.m., local time, and at any
adjournment thereof.
This proxy will be voted as instructed. If no specification is made, the proxy
will be voted "FOR" the proposals.
Please vote, date and sign this proxy and return it promptly in the enclosed
envelope.
Please indicate your vote by an "x" in the appropriate box below.
THE BOARD OF DIRECTORS 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 the Fund by the Pilgrim High Yield Fund II
in exchange for shares of common stock of the Pilgrim High Yield Fund II and the
assumption by the Pilgrim High Yield Fund II of all of the liabilities of the
Fund.
For [ ] Against [ ] Abstain [ ]
This proxy must be signed exactly as your name(s) appears hereon. If as an
attorney, executor, guardian or in some representative capacity or as an officer
of a corporation, please add titles as such. Joint owners must each sign.
----------------------------------- -----------------------------------
Signature Date
----------------------------------- -----------------------------------
Signature (if held jointly) Date
<PAGE>
PILGRIM HIGH TOTAL RETURN FUND II
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS ON ________ ___, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoint(s) Robert W. Stallings and James M. Hennessy or
any one or more of them, proxies, with full power of substitution, to vote all
shares of the Pilgrim High Total Return Fund II (the "Fund") which the
undersigned is entitled to vote at the Special Meeting of Shareholders of the
Fund to be held at the offices of the Fund at 7337 E. Doubletree Ranch Road,
Scottsdale, Arizona 85258 on ________ ___, 2001 at ______ a.m., local time, and
at any adjournment thereof.
This proxy will be voted as instructed. If no specification is made, the proxy
will be voted "FOR" the proposals.
Please vote, date and sign this proxy and return it promptly in the enclosed
envelope.
Please indicate your vote by an "x" in the appropriate box below.
THE BOARD OF DIRECTORS 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 the Fund by Pilgrim High Yield Fund II in
exchange for shares of common stock of the Pilgrim High Yield Fund II and the
assumption by the Pilgrim High Yield Fund II of all of the liabilities of the
Fund.
For [ ] Against [ ] Abstain [ ]
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Signature Date
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Signature (if held jointly) Date
