As filed with the Securities and Exchange Commission on December 1, 2000
Securities Act File No. 333-_________
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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 copies to:
Jeffrey S. Puretz
Dechert
1775 Eye Street, N.W.
Washington, DC 20006
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Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
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It is proposed that this filing will become effective on
December 31, 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 Global Income Fund
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258
1-800-992-0180
___________, 2000
Dear Shareholder:
Your Board of Trustees has called a Special Meeting of Shareholders of
Pilgrim Global Income Fund to be held at _:__ a.m., local time, on ___________,
2001 at 7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258.
The Board of Trustees has approved a reorganization of Pilgrim Global
Income Fund into Pilgrim Strategic Income Fund, which is managed by ING Pilgrim
Investments, Inc. and is part of the Pilgrim Funds (the "Reorganization"). If
approved by shareholders, you would become a shareholder of Pilgrim Strategic
Income Fund on the date that the Reorganization occurs. Pilgrim Strategic Income
Fund has investment objectives and policies that are compatible in many respects
to those of Pilgrim Global Income Fund.
You are being asked to vote to approve a Plan of Reorganization. The
accompanying document describes the proposed transaction and compares the
policies and expenses of each of the funds for your evaluation.
After careful consideration, the Board of Trustees of Pilgrim Global Income
Fund unanimously approved this proposal and recommended that shareholders vote
"FOR" the proposal.
A Proxy Statement/Prospectus that describes the Reorganization is enclosed.
We hope that you can attend the Special Meeting in person; however, we urge you
in any event to vote your shares by completing and returning the enclosed proxy
card in the envelope provided at your earliest convenience.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. IN ORDER
TO AVOID THE ADDED COST OF FOLLOW-UP SOLICITATIONS AND POSSIBLE ADJOURNMENTS,
PLEASE TAKE A FEW MINUTES TO READ THE PROXY STATEMENT/PROSPECTUS AND CAST YOUR
VOTE. IT IS IMPORTANT THAT YOUR VOTE BE RECEIVED NO LATER THAN ____________,
2001.
Pilgrim Global Income Fund is 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 Global Income Fund
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258
1-800-992-0180
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
PILGRIM GLOBAL INCOME FUND
SCHEDULED FOR ____________, 2001
To the Shareholders:
A Special Meeting of Shareholders of Pilgrim Global Income Fund ("Special
Meeting") is scheduled for ____________, 2001 at _:__ a.m., local time, at 7337
East Doubletree Ranch Road, Scottsdale, Arizona 85258.
The purposes of the Special Meeting of Pilgrim Global Income Fund are as
follows:
1. To approve an Agreement and Plan of Reorganization providing for the
acquisition of all of the assets and liabilities of Pilgrim Global
Income Fund by Pilgrim Strategic Income Fund in exchange for shares of
Pilgrim Strategic Income Fund and the subsequent liquidation of
Pilgrim Global Income Fund; and
2. To transact such other business as may properly come before the
Special Meeting of Shareholders or any adjournments thereof.
Shareholders of record at the close of business on __________ __, 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.................... 4
Comparison of Portfolio Characteristics............................... 5
Relative Performance.................................................. 6
Comparison of Investment Techniques and Risks of the Funds............ 6
COMPARISON OF FEES AND EXPENSES.......................................... 9
Annual Fund Operating Expenses........................................ 10
General Information................................................... 11
ADDITIONAL INFORMATION ABOUT STRATEGIC INCOME FUND....................... 12
Investment Personnel.................................................. 12
Performance of Strategic Income Fund.................................. 13
INFORMATION ABOUT THE REORGANIZATION..................................... 14
ADDITIONAL INFORMATION ABOUT THE FUNDS................................... 16
GENERAL INFORMATION ABOUT THE PROXY STATEMENT............................ 17
Solicitation of Proxies............................................... 17
Voting Rights......................................................... 18
Other Matters to Come Before the Special Meeting...................... 18
Shareholder Proposals................................................. 19
Reports to Shareholders............................................... 19
APPENDIX A............................................................... A-1
APPENDIX B............................................................... B-1
APPENDIX C............................................................... C-1
APPENDIX D............................................................... D-1
APPENDIX E............................................................... E-1
<PAGE>
PROXY STATEMENT/PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS SCHEDULED FOR
__________ __, 2001
PILGRIM GLOBAL INCOME FUND
Relating to the Reorganization into
PILGRIM STRATEGIC INCOME FUND
(a series of Pilgrim Mutual Funds)
(COLLECTIVELY, THE "FUNDS")
INTRODUCTION
This Proxy Statement/Prospectus provides you with information about a
proposed transaction. The transaction involves the transfer of all the assets
and liabilities of Pilgrim Global Income Fund ("Global Income Fund") to Pilgrim
Strategic Income Fund ("Strategic Income Fund") in exchange for shares of
Strategic Income Fund (the "Reorganization"). Global Income Fund would then
distribute to its shareholders their portion of the shares of Strategic Income
Fund it receives in the Reorganization. The result would be a liquidation of
Global Income Fund. You would receive shares of Strategic Income Fund having an
aggregate value equal to the aggregate value of the shares you held of Global
Income Fund, as of the close of business on the business day of the closing of
the Reorganization. You are being asked to vote on the Agreement and Plan of
Reorganization through which these transactions would be accomplished.
Because you, as a shareholder of Global Income Fund, are being asked to
approve a transaction that will result in your holding of shares of Strategic
Income Fund, this Proxy Statement also serves as a Prospectus for Strategic
Income Fund.
This Proxy Statement/Prospectus, which you should retain for future
reference, contains important information about Strategic Income Fund that you
should know before investing. For a more detailed discussion of the investment
objectives, policies, restrictions and risks of Strategic Income Fund, see the
Prospectus (the "Prospectus") and the Statement of Additional Information for
Strategic Income Fund dated November 1, 2000, which may be obtained, without
charge, by calling 1-800-992-0180. Strategic Income Fund also provides periodic
reports to its shareholders which highlight certain important information about
the Fund, including investment results and financial information. The annual
report for Strategic Income Fund dated June 30, 2000 is incorporated herein by
reference. You may receive a copy of the most recent annual report for each of
the Funds and a copy of any more recent semi-annual report, without charge, by
calling 1-800-992-0180.
You may also obtain proxy materials, reports and other information filed by
Strategic Income Fund from the Securities and Exchange Commission's ("SEC")
Public Reference Room at 202-942-8090 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.
1
<PAGE>
SUMMARY
You should read this entire Proxy Statement/Prospectus carefully. For
additional information, you should consult the Prospectus and the Agreement and
Plan of Reorganization, which is attached hereto as Appendix B.
THE PROPOSED REORGANIZATION. On November 2, 2000, the Board of Trustees
of Global Income Fund approved an Agreement and Plan of Reorganization (the
"Reorganization Agreement"). Subject to shareholder approval, the Reorganization
Agreement provides for:
* the transfer of all of the assets of Global Income Fund to Strategic
Income Fund, in exchange for shares of Strategic Income Fund;
* the assumption by Strategic Income Fund of all of the liabilities of
Global Income Fund;
* the distribution of Strategic Income Fund shares to the shareholders
of Global Income Fund; and
* the complete liquidation of Global Income Fund (the "Reorganization").
The Reorganization is 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 Reorganization, each shareholder of the Class A,
Class B, Class C, and Class Q shares of Global Income Fund would become a
shareholder of the same Class of Strategic Income Fund. Each shareholder would
hold, immediately after the Closing, shares of each Class of Strategic Income
Fund having an aggregate value equal to the aggregate value of the shares of
that same Class of Global Income Fund held by that shareholder as of the close
of business on the business day preceding the Closing.
The Reorganization is one of many reorganizations that are proposed among
various Pilgrim Funds. The Pilgrim Fund 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 they believe have
similar or compatible investment policies. The proposed reorganizations are
designed to reduce the overlap in funds offered by the Pilgrim Funds, 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.
Another reason for the Reorganization of Global Income Fund is that
management currently believes that international bonds are not an attractive
asset class for U.S. investors, and a global bond fund is not likely to attract
sufficient assets to become a viable mutual fund, whereas a fund that invests in
international bonds as well as other types of fixed-income instruments,
including domestic fixed-income instruments, has greater potential to become a
viable fund.
2
<PAGE>
In considering whether to approve the Reorganization, you should note that:
* The Funds have investment objectives and policies that are compatible
in many respects. Global Income Fund seeks high current income, with
capital appreciation as a secondary objective. Strategic Income Fund
seeks maximum total return (consisting of income earned on the Fund's
investments plus capital appreciation, if any, arising from decreases
in interest rates or improving credit fundamentals for a security or
sector). Global Income Fund invests in a variety of foreign and
domestic high yield, lower rated and unrated debt securities.
Strategic Income Fund invests in primarily investment grade
securities, and to a lesser extent in high yield debt securities.
* If approved, shareholders of Global Income Fund will no longer
participate in a Fund that invests primarily in high yield securities
of foreign and domestic issuers; rather, Strategic Income Fund
normally invests primarily in U.S. dollar denominated securities, with
not more than 30% of its assets in securities denominated in foreign
currencies. Management has determined that it no longer wishes to
offer a fund that may invest primarily in high yield securities of
foreign issuers. If the Reorganization is not approved, management may
ask the Board to consider other courses of action, including
dissolving the Fund and distributing its net assets to shareholders on
a pro rata basis.
* The proposed Reorganization is expected to result in a reduction in
net operating expenses for shareholders of Global Income Fund. In
particular, the operating expenses, expressed as a percentage of net
asset value per share of Class A shares, are as follows:
* Expenses of Global Income Fund (based on the
year ended June 30, 2000):(1) 1.84%
* Expenses of Strategic Income Fund - before
expense reimbursements (based on the year ended
June 30, 2000): 2.53%
* Expenses of Strategic Income Fund - after
expense reimbursements (based on the year ended
June 30, 2000): 0.96%
* Estimated expenses of Strategic Income Fund
after the reorganization -- before expense
reimbursements: 1.57%
* Estimated expenses of Strategic Income Fund
after the reorganization -- after expense
reimbursements: 0.96%
-------
(1) Based upon expenses incurred by the Global Income Fund for the 12 month
period ended June 30, 2000, adjusted for the expense of current contracts
and 12b-1 plans which became effective when ING Pilgrim Investments, Inc.
("ING Pilgrim Investments") became the adviser to the Fund on July 26,
2000.
Approval of the Reorganization Agreement requires the affirmative vote of a
majority of the outstanding shares of Global Income Fund.
AFTER CAREFUL CONSIDERATION, THE BOARD OF TRUSTEES OF GLOBAL INCOME FUND
UNANIMOUSLY APPROVED THE PROPOSED REORGANIZATION. THE BOARD RECOMMENDS THAT YOU
VOTE "FOR" THE PROPOSED REORGANIZATION.
3
<PAGE>
COMPARISON OF INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
GLOBAL INCOME FUND STRATEGIC INCOME FUND
------------------ ---------------------
<S> <C> <C>
INVESTMENT OBJECTIVE Seeks high current income. Capital appreciation Seeks maximum total return. (The "total return"
is a secondary objective. sought by the Fund consists of income earned on
the Fund's investments, plus capital appreciation,
if any, which generally arises from decreases in
interest rates or improving credit fundamentals
for a particular sector or security.)
* Under normal conditions, invests at least 60%
INVESTMENT STRATEGIES * Under normal conditions, invests of its total assets in debt securities issued
substantially all of its assets in lower by U.S. and foreign corporations, U.S. and
rated or unrated debt securities of foreign governments, and their agencies and
domestic companies, companies in developed instrumentalities that are rated in one of the
foreign countries, and companies in top four categories by a nationally recognized
emerging markets. The credit quality of statistical rating agency, or of comparable
foreign debt securities in which the Fund quality if unrated. These securities include
invests is generally equal to U.S. bonds, notes, and mortgage-backed and
corporate debt securities known as "junk asset-backed securities with rates that are
bonds." The debt securities consist of fixed, variable or floating.
bonds, notes, debentures, and similar
instruments. * May invest up to 40% of its total assets in
high yield debt securities, commonly known as
* May invest in debt securities issued by "junk bonds." There is no minimum credit
foreign governments, their agencies and rating for high yield debt securities in which
instrumentalities, central banks, the Fund may invest.
commercial banks, and other corporate
entities. * May invest in debt securities of any maturity;
however, the average portfolio duration of the
* May invest up to 100% of total assets in Fund will generally range from two to eight
domestic and foreign debt securities that years.
are rated below investment grade or are of
comparable quality. * May invest up to 30% of its total assets in
securities payable in foreign currencies.
* May invest in securities that are in
default as to payment of principal and/or * May invest up to 10% of its total assets in
interest, and bank loan participations and other investment companies that invest in
assignments. secured floating rate loans, including up to
5% of its assets in Pilgrim Prime Rate Trust,
a closed-end investment company.
* May also use options, futures contracts and
interest rate and currency swaps as hedging
techniques. The Fund does not invest in
interest-only or principal-only stripped
mortgage-backed securities.
INVESTMENT ADVISER ING Pilgrim Investments, Inc. ING Pilgrim Investments, Inc.
PORTFOLIO MANAGER Denis P. Jamison Edwin Schriver and Robert K. Kinsey
</TABLE>
4
<PAGE>
COMPARISON OF PORTFOLIO CHARACTERISTICS
The following table compares certain characteristics of the portfolios
of the Funds as June 30, 2000:
<TABLE>
<CAPTION>
GLOBAL INCOME FUND STRATEGIC INCOME FUND
------------------ ---------------------
<S> <C> <C>
Net Assets $30,173,826 $11,380,184
Number of Holdings 47 47
Ratio of Net Investment Income to
Average Net Assets 7.98%(1) 7.69%(2)
Average Credit Quality BB+ A
Below Investment Grade ("Junk Bond") Portfolio
Holdings (as a % of net assets) (Rated) 50.87% 4.12%
Below Investment Grade ("Junk Bond") Portfolio
Holdings (as a % of net assets) (Unrated) 14.60% 10.10%
Bonds in Default (as a % of net assets) 0.54% 0.00%
Average Remaining Dollar Weighted Duration of
High Yield Securities 9.21 years 4.90 years
As a percentage of net assets:
U.S. Corporate Bonds 19.80% 36.63%
Foreign Corporate Bonds 21.30% 1.30%
U.S. Treasury and Agency Obligations 0.00% 43.72%
Collateralized Mortgage Obligations and
Asset-Backed Securities 0.00% 7.68%
Foreign Government Bonds (including foreign
agencies and instrumentalities) 53.60% 0.00%
Investment Company Shares 0.00% 5.03%
Portfolio Turnover Rate (12 months
ended 6/30/00) 20.00% 168.00%
Top 10 Countries (as a % of net assets) United States - 19.80% United States - 100%
Poland - 9.30%
Denmark - 8.80%
Hungary - 6.40%
Brazil - 6.00%
Greece - 5.20%
Dominican Republic - 4.70%
Philippines - 4.60%
Sweden - 3.90%
Norway - 3.70%
Top 5 Industries (as a % of net assets) Foreign Governments & Agencies - 53.62% US Treasury Obligations - 24.23%
Utilities - 21.64% FNMA - 12.47%
Mortgage - 10.88 % Communications - Wireline - 10.14%
Transportation - 4.42% FHLMC - 0.98%
Broadcasting, Radio & Television - 2.96% Communications - Internet - 6.71%
Top 10 Holdings (as a % of net assets) Government of Brazil Bonds - 6.00% US Treasury Bonds 6.00% - 7.83%
Tricom - 4.66% U.S. Treasury Note 6.125% - 7.10%
Philippine Gov. Bonds 18% - 4.58% FNMA 7.125 - 6.59%
Government Of Sweden - 3.88% U.S. Treasury Note 7.25% - 5.81%
Hungarian Government Bonds - 3.86% Pilgrim Prime Rate Trust - 5.03%
Unikredit Realkredit - 3.82% Charter Communications Hldg. - 5.00%
Cemex SA - 3.72% FNMA 7.25 - 4.43%
Norwegian Government Bonds - 3.70% FHLMC 7.00% - 4.02%
Poland T-bill 5/16/01 - 3.30% U.S. Treasury Bonds 6.00% - 3.49%
Polish Government Bonds - 3.25% Pinnacle Holdings - 3.03%
</TABLE>
(1) Annualized for the six months ended 6/30/00.
(2) For the year ended 6/30/00.
5
<PAGE>
RELATIVE PERFORMANCE
The following table shows, for certain periods, the average annual total
return for: (a) Class A shares of Global Income Fund; (b) Class A Shares of
Strategic Income Fund; (c) the Lehman Brothers Global Treasury Index; and (d)
the Lehman Aggregate Bond Index. Performance of the Funds in the table does not
reflect the deduction of sales loads, and would be lower if it did. The indices
have an inherent performance advantage over the Funds since they have no cash in
their portfolios, impose no sales charges and incur no operating expenses. An
investor cannot invest directly in an index. Total return is calculated assuming
reinvestment of all dividends and capital gain distributions at net asset value
and excluding the deduction of sales charges.
LEHMAN
BROTHERS
GLOBAL STRATEGIC GLOBAL LEHMAN
CALENDAR YEAR INCOME INCOME TREASURY AGGREGATE BOND
ENDED/PERIOD FUND(2) FUND(3) INDEX(4) INDEX(5)
------------ ------- ------- -------- --------
12/31/99 -0.31% -1.16% -0.99% -0.82%
1/1/00-9/30/00(1) -1.92% 2.49% -2.68% 7.12%
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(1) Not annualized.
(2) Prior to July 26, 2000, the Fund was advised by Lexington Management
Corporation, which was acquired by the parent to ING Pilgrim Investments,
on July 26, 2000. ING Pilgrim Investments became the adviser on that same
day.
(3) Strategic Income Fund commenced operations on July 27, 1998.
(4) The Lehman Brothers Global Treasury Index is an unmanaged index that is
comprised of 19 countries with an average maturity of 7.46% The index is
overweighted in the U.S. and Japan, 27% and 25%, respectively. The average
coupon is 5.37%. The index returns are calculated in three ways: U.S.
Dollar, hedged U.S. Dollar, and local returns (local currencies). The
modified adjusted duration of the index is 5.5 years.
(5) The Lehman Aggregate Bond Index is an unmanaged index that measures the
performance of fixed income securities that are similar, but not identical,
to those in the Strategic Income Fund's portfolio.
COMPARISON OF INVESTMENT TECHNIQUES AND RISKS OF THE FUNDS
Because both Funds invest primarily in debt securities, and may invest in
debt securities of foreign issuers or lower rated or unrated debt securities,
many of the risks of investing in Strategic Income Fund are similar to the risks
of investing in Global Income Fund. A principal risk of an investment in each of
the Funds is that you could 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.
6
<PAGE>
CORPORATE DEBT SECURITIES. Each Fund may invest in corporate debt
securities. Corporate debt securities are subject to the risk of the issuer's
inability to meet principal and interest payments on the obligation (credit
risk) and may also be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of the
issuer and general market liquidity (market risk). When interest rates decline,
the value of debt securities can be expected to rise, and when interest rates
rise, the value of those securities can be expected to decline. Debt securities
with longer maturities tend to be more sensitive to interest rate movements than
those with shorter maturities. Each Fund could lose money if the issuer of a
debt security is unable to meet its financial obligations or goes bankrupt. This
is especially true during periods of economic uncertainty or economic downturns.
These Funds, particularly the Global Income Fund, may be subject to more credit
risk than other income funds, because they may invest in high yield debt
securities, which are considered predominantly speculative with respect to the
issuer's continuing ability to meet interest and principal payments.
HIGH YIELD SECURITIES. Each Fund may invest in high yield securities
(commonly known as "junk bonds"), which are debt securities that are rated below
investment grade by a nationally recognized statistical rating organization or
are of comparable quality if not rated. Strategic Income Fund may invest up to
40% of its assets in junk bonds. Global Income Fund may invest up to 100% of its
assets in junk bonds.
High yield securities generally provide greater income and increased
opportunity for capital appreciation than higher quality debt securities, but
they also typically entail greater potential credit risk and price volatility.
High yield securities are regarded as predominately speculative with respect to
the issuing company's continuing ability to meet principal and interest
payments. The prices of high yield securities have been found to be less
sensitive to interest rate changes than higher-rated investments, but more
sensitive to adverse economic downturns or individual corporate developments.
The market prices of high yield securities structured as zero-coupon or
pay-in-kind securities tend to be more volatile.
The high yield securities in which the Funds invest may be less liquid than
higher quality investments. A security in the lowest rating categories that is
unrated or whose credit rating has been lowered may be particularly difficult to
sell. Foreign securities and mortgage-related and asset-backed debt securities
may be less liquid than other debt securities. Each Fund could lose money if it
cannot sell a security at the time and price that would be most beneficial to
the Fund.
FOREIGN SECURITIES. Each Fund may invest in foreign securities and the
Global Income Fund normally invests primarily in such securities. There are
risks in owning foreign securities, including: (i) fluctuations in currency
exchange rates; (ii) devaluation of currencies; (iii) political or economic
developments and the possible imposition of currency exchange blockages or other
foreign governmental laws or restrictions; (iv) reduced availability of public
information concerning issuers; and (v) accounting, auditing and financial
reporting standards or other regulatory practices and requirements that are not
uniform when compared to those applicable to U.S. companies. 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.
DERIVATIVE SECURITIES. Derivatives are financial instruments whose
performance is derived, at least in part, from the performance of an underlying
asset or assets. Each Fund may employ the use of derivative instruments.
Strategic Income Fund may use options, futures contracts and interest rate and
currency swaps as hedging techniques. Strategic Income Fund does not invest in
interest-only or principal-only stripped mortgage-backed securities.
7
<PAGE>
Derivatives are subject to the risk of changes in the market price of the
security, credit risk with respect to the counterparty to the derivatives
instrument, and the risk of loss due to changes in interest rates. The use of
derivatives may reduce returns for both Funds. A risk of using financial futures
contracts for hedging purposes is that the adviser might imperfectly judge the
market's direction, so that the hedge might not correlate to the market's
movements and may be ineffective. Furthermore, if a Fund buys a futures contract
to gain exposure to securities, the Fund is exposed to the risk of change in the
value of the underlying securities and futures contract.
MORTGAGE-RELATED SECURITIES AND ASSET-BACKED SECURITIES. Strategic Income
Fund may invest in mortgage-related securities. Investments in mortgage-related
securities involve certain risks. Like other fixed-income securities, when
interest rates rise, the value of a mortgage-related security generally will
decline, and may decline more rapidly as the underlying mortgages are less
likely to be prepaid; however, when interest rates are declining, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed income securities. The mortgage loans underlying a mortgage-related
security will be subject to normal principal amortization, and may be prepaid
prior to maturity due to the sale of the underlying property, the refinancing of
the loan, or foreclosure. The rate of prepayments on underlying mortgages will
affect the price and volatility of a mortgage-related security, and may have the
effect of shortening or extending the effective maturity of the security beyond
what was anticipated at the time of the purchase. Unanticipated rates of
prepayment on underlying mortgages may increase the volatility of such
securities. In addition, the value of these securities may fluctuate in response
to the market's perception of the creditworthiness of the issuers of
mortgage-related securities owned by the Fund. Further, during periods that
interest rates are low, prepaid amounts would be reinvested in low yielding
instruments.
Strategic Income Fund may also invest in non-mortgage related asset-backed
securities which include, but are not limited to, interests in pools of
receivables, such as credit card and accounts receivables and motor vehicle and
other installment purchase obligations and leases. Interest in these pools are
not backed by the U.S. Government and may or may not be secured. The credit
characteristics of asset-backed securities differs in a number of respects from
those of traditional debt securities. Asset-backed securities generally do not
have the benefit of a security interest in collateral that is comparable to
other debt obligations, and there is a possibility that recoveries on
repossessed collateral may not be available to support payment on these
securities.
INTERESTS IN LOANS. Both Funds may invest in participation interests or
assignments in secured variable or floating rate loans, which include
participation interests in lease financings. Loans are subject to the credit
risk of nonpayment of principal or interest. Substantial increases in interest
rates may cause an increase in loan defaults. Although the loans will generally
be fully collateralized at the time of acquisition, the collateral may decline
in value, be relatively illiquid, or lose all or substantially all of its value
subsequent to the Fund's investment. Many loans are relatively illiquid, and may
be difficult to value.
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities. U.S. Government securities include direct obligations of the U.S.
Treasury (such as U.S. Treasury bills, notes and bonds) and obligations issued
or guaranteed by U.S. Government agencies or instrumentalities. While U.S.
Government securities provide substantial protection against credit risk, they
do not protect investors against price declines in the securities due to
changing interest rates. Additionally, obligations of some U.S. Government
agencies, such as FNMA and FHLMC, are not backed by the full faith and credit of
the U.S. Government, and are subject to somewhat greater credit risk than direct
obligations of the U.S. Treasury.
8
<PAGE>
NON-DIVERSIFICATION RISK. Global Income Fund is a non-diversified
investment company, meaning that, compared with other Funds, it may invest a
greater percentage of its assets in a particular issuer. The investment of
Global Income Fund's assets in the securities of a small number of issuers may
cause the Fund's share price to fluctuate more than that of Strategic Income
Fund, a diversified investment company.
COMPARISON OF FEES AND EXPENSES
The following discussion describes and compares the fees and expenses of
the Funds. For further information on the fees and expenses of Strategic Income
Fund, see "Appendix C: Additional Information Regarding Pilgrim Strategic Income
Fund."
TOTAL OPERATING EXPENSES. The operating expenses of Strategic Income Fund,
expressed as a ratio of expenses to average daily net assets ("expense ratio"),
currently are lower than those of the Global Income Fund, after giving effect to
the expense limitation agreement for Strategic Income Fund. For the year ended
June 30, 2000, the net expenses, after the fee waivers, for Class A, B, C and Q
shares of Strategic Income Fund were 0.96%, 1.36%, 1.36%, and 0.86%,
respectively. These expense ratios are lower than those of Class A, B, C and Q
shares of Global Income Fund, which were 1.84%, 2.59% 2.59% and 1.84% for the
year ended June 30, 2000, after adjustment for current contractual charges and
distribution plan expenses. The expense ratios of Class A, B, C and Q shares of
Strategic Income Fund, without giving effect to the expense limitation
agreement, were 2.53%, 2.93%, 2.93%, and 2.43%, respectively, for the year ended
June 30, 2000. The estimated PRO FORMA expense ratio, after giving effect to the
merger of Global Income Fund into Strategic Income Fund, and without giving
effect to the expense limitation agreement, for Class A, B, C, and Q shares,
would be 1.57%, 1.97%, 1.97%, and 1.47%, respectively. The operating expenses
for the Global Income Fund are based upon expenses incurred by the Fund for the
12 month period ended June 30, 2000, adjusted for current expenses of contacts
and distribution plans which became effective when ING Pilgrim Investments
became adviser to the Fund on July 26, 2000.
MANAGEMENT FEE. The management fee for Strategic Income Fund is lower than
the fee for Global Income Fund. Each Fund pays a management fee based on a
percentage of the Fund's average daily net assets, as follows:
ASSETS TO WHICH FEE APPLIES GLOBAL INCOME FUND STRATEGIC INCOME FUND
--------------------------- ------------------ ---------------------
First $500 million 1.00% 0.45%
Next $250 million 1.00% 0.40%
Assets over $750 million 1.00% 0.35%
DISTRIBUTION AND SERVICE (12b-1) FEES. The Class A distribution and service
fee for Strategic Income Fund is 0.10% higher than that of the corresponding
class of Global Income Fund. The Class B and Class C distribution and service
fees for Strategic Income Fund are 0.25% lower than those of the corresponding
Classes of Global Income Fund. The Class Q service fees for Strategic Income
Fund and Global Income Fund are identical.
EXPENSE LIMITATION. Expense limitation arrangements are in place for
Strategic Income Fund. Under the terms of the agreement, ING Pilgrim Investments
will limit expenses of Strategic Income Fund, excluding interest, taxes,
brokerage and extraordinary expenses, subject to possible reimbursement to ING
Pilgrim Investments within three years. The current expense limitation agreement
for Strategic Income Fund provides that it will remain in effect through at
least October 31, 2001. There can be no assurances that the expense limitation
agreement will be continued after that date. The expense limitations for Class
A, B, C, and Q shares of Strategic Income Fund are 0.95%, 1.35%, 1.35%, and
0.85%, respectively.
9
<PAGE>
EXPENSE TABLE. The current expenses of each Fund and estimated PRO FORMA
expenses giving effect to the proposed Reorganization are shown in the table
below. Expenses for the Funds are based upon the operating expenses incurred by
each Class of shares for the 12 month period ended June 30, 2000, as adjusted,
in the case of Global Income Fund, for the current expenses of contracts and
distribution plans that became effective when ING Pilgrim Investments become
adviser to the Fund on July 26, 2000. PRO FORMA fees show estimated fees of
Strategic Income Fund after giving effect to the proposed Reorganization. PRO
FORMA numbers are estimated in good faith and are hypothetical.
ANNUAL FUND OPERATING EXPENSES (UNAUDITED)
(expenses that are deducted from Fund assets, shown as a ratio of expenses to
average daily net assets) (1)
<TABLE>
<CAPTION>
DISTRIBUTION
(12b-1) AND
SHAREHOLDER TOTAL FUND FEE WAIVER
MANAGEMENT SERVICING OTHER OPERATING BY NET FUND
CLASS A FEES FEES(2) EXPENSES EXPENSES ADVISER(3)(4) EXPENSES
------- ---- ------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Global Income Fund 1.00% 0.25% 0.59% 1.84% -- 1.84%
Strategic Income Fund 0.45% 0.35% 1.73% 2.53% -1.57% 0.96%
Surviving Fund after
Reorganization (PRO FORMA) 0.45% 0.35% 0.77% 1.57% -0.61% 0.96%
CLASS B
Global Income Fund 1.00% 1.00% 0.59% 2.59% -- 2.59%
Strategic Income Fund 0.45% 0.75% 1.73% 2.93% -1.57% 1.36%
Surviving Fund after
Reorganization (PRO FORMA) 0.45% 0.75% 0.77% 1.97% -0.61% 1.36%
CLASS C
Global Income Fund 1.00% 1.00% 0.59% 2.59% -- 2.59%
Strategic Income Fund 0.45% 0.75% 1.73% 2.93% -1.57% 1.36%
Surviving Fund after
Reorganization (PRO FORMA) 0.45% 0.75% 0.77% 1.97% -0.61% 1.36%
CLASS Q
Global Income Fund 1.00% 0.25% 0.59% 1.84% -- 1.84%
Strategic Income Fund 0.45% 0.25% 1.73% 2.43% -1.57% 0.86%
Surviving Fund after
Reorganization (PRO FORMA) 0.45% 0.25% 0.77% 1.47% -0.61% 0.86%
</TABLE>
----------
(1) Strategic Income Fund's fiscal year ends on June 30 while Global Income
Fund's fiscal year ends on December 31. Expenses of the Funds and the PRO
FORMA expenses are estimated based upon expenses incurred by each Fund for
the 12 month period ended June 30, 2000. Global Income Fund's expenses are
adjusted for the expense of current contracts and distribution plans which
became effective when ING Pilgrim Investments became adviser to the Fund on
July 26, 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 Pilgrim Mutual Funds (of which Strategic Income Fund is a series) that
limits expenses (excluding interest, taxes, brokerage and extraordinary
expenses) for Strategic Income Fund to 0.95%, 1.35%, 1.35% and 0.85% for
Class A, Class B, Class C and Class Q shares, respectively, subject to
possible later recoupment. ING Pilgrim Investments has agreed that the
expense limitations shown in the table will apply to Strategic Income Fund
until at least October 31, 2001.
10
<PAGE>
4) ING Pilgrim Investments has entered into an expense limitation agreement
for the Global Income Fund. The Fund's actual expenses are lower than the
expense limitations contained in the agreement. ING Pilgrim Investments has
agreed to limit expenses to 2.75%, 3.50%, 3.50% and 2.75% for Class A,
Class B, Class C, and Class Q, respectively. The expense limitation
agreement will run through July 26, 2002. There is no guarantee that the
expense limitation agreement will be continued after that date.
Following the Reorganization and in the ordinary course of business as a
mutual fund, certain holdings of Global Income Fund that were transferred to
Strategic Income Fund in connection with the Reorganization may be sold. Such
sales may result in increased transactional costs for Strategic Income Fund, and
the realization of taxable gains or losses for Strategic Income Fund.
EXAMPLES. The examples are intended to help you compare the cost of
investing in the each of the Funds. The examples assume that you invest $10,000
in each Fund for the time periods indicated and then redeem all of your shares
at the end of those periods. The examples also assume that your investment has a
5% return each year and that each Fund's operating expenses remain the same. The
5% return is an assumption and is not intended to portray past or future
investment results. Based on the above assumptions, you would pay the following
expenses if you redeem your shares at the end of each period shown. Your actual
costs may be higher or lower.
<TABLE>
<CAPTION>
PRO FORMA
GLOBAL INCOME FUND STRATEGIC INCOME FUND THE FUNDS COMBINED**
------------------------------- -------------------------------- --------------------------------
1 3 5 10 1 3 5 10 1 3 5 10
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ---- ----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $653 $1,026 $1,423 $2,531 $568 $1,082 $1,622 $3,092 $568 $890 $1,235 $2,204
Class B 762 1,105 1,575 2,742* 638 1,058 1,604 3,045* 638 859 1,206 2,143*
Class C 362 805 1,375 2,925 238 758 1,404 3,140 238 559 1,006 2,247
Class Q 187 579 995 2,159 88 607 1,153 2,647 88 405 745 1,705
</TABLE>
----------
* The ten year calculations for Class B shares assume conversion of the Class
B shares to Class A shares at the end of the eighth year following the date
of purchase.
** Estimated.
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
PRO FORMA
GLOBAL INCOME FUND STRATEGIC INCOME FUND THE FUNDS COMBINED**
------------------------------- -------------------------------- --------------------------------
1 3 5 10 1 3 5 10 1 3 5 10
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ---- ----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $653 $1,026 $1,423 $2,531 $568 $1,082 $1,622 $3,092 $568 $890 $1,235 $2,204
Class B 262 805 1,375 2,742* 138 758 1,404 3,045* 138 559 1,006 2,143*
Class C 262 805 1,375 2,925 138 758 1,404 3,140 138 559 1,006 2,247
Class Q 187 579 995 2,159 88 607 1,153 2,647 88 405 745 1,705
</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 end of the eighth year
following the date of purchase.
** Estimated.
11
<PAGE>
GENERAL INFORMATION
Class A, Class B, Class C and Class Q shares of Strategic Income Fund
issued to a shareholder in connection with the Reorganization will be subject to
the same contingent deferred sales charge, if any, applicable to the
corresponding shares of Global Income Fund held by that shareholder immediately
prior to the Reorganization.
In addition, the period that the shareholder held shares of Global Income
Fund will be included in the holding period of Strategic Income Fund shares for
purposes of calculating any contingent deferred sales charge. Similarly, Class B
shares of Strategic Income Fund issued to a shareholder in connection with the
Reorganization will convert to Class A shares eight years after the date that
the Class B shares of Global Income Fund were purchased by the shareholder.
Strategic Income Fund and Global Income Fund are each subject to the sales load
structure described in the table below.
TRANSACTION FEES ON NEW INVESTMENTS
(fees paid directly from your investment)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Q
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) 4.75%(1) None None None
Maximum deferred sales charge (load) (as a
percentage of the lower of original purchase
price or redemption proceeds) None(2) 5.00%(3) 1.00%(4) None
</TABLE>
----------
(1) Reduced for purchases of $50,000 and over. See "Class A Shares: Initial
Sales Charge Alternative" in Appendix C and "Shareholder Guide -- Choosing
a Share Class" in the Prospectus.
(2) A contingent deferred sales charge of no more than 1.00% may be assessed on
redemptions of Class A shares that were purchased without an initial sales
charge as part of an investment of $1 million or more. See "Class A Shares:
Initial Sales Charge Alternative" in Appendix C.
(3) Imposed upon redemptions within 6 years of purchase. The fee has scheduled
reductions after the first year. See "Class B Shares: Deferred Sales Charge
Alternative" in Appendix C and "Shareholder Guide -- Sales Charge
Calculation" in the Prospectus.
(4) Imposed upon redemptions within 1 year from purchase.
Neither Strategic Income Fund nor Global Income Fund have any redemption
fees, exchange fees or sales charges on reinvested dividends.
ADDITIONAL INFORMATION ABOUT STRATEGIC INCOME FUND
INVESTMENT PERSONNEL
The following individuals share responsibility for the day-to-day
management of Strategic Income Fund:
* Robert K. Kinsey, Vice President of ING Pilgrim Investments, has
served as a Portfolio Manager of Strategic Income Fund since May 24,
1999. Mr. Kinsey manages Strategic Income Fund's assets that are
invested in securities other than high yield debt securities. Prior to
joining ING Pilgrim Investments, Mr. Kinsey was a Vice President and
Fixed Income Portfolio Manager for Federated Investors from January
1995 to March 1999. From July 1992 to January 1995, Mr. Kinsey was a
Principal and Portfolio Manager for Harris Investment Management.
12
<PAGE>
* Edwin Schriver, Senior Vice President of ING Pilgrim Investments, has
served as a Senior Portfolio Manager of the portfolio management team
that manages Strategic Income Fund since October 2000. Prior to
joining ING Pilgrim Investments, Mr. Schriver was a Senior High Yield
Analyst for Dreyfus Corporation since 1998. From 1996 to 1997, Mr.
Schriver was the president of Crescent City Research, an investment
research and software firm. Prior to 1996, Mr. Schriver was President
of an SEC-registered investment adviser and held various senior
portfolio management positions.
PERFORMANCE OF STRATEGIC INCOME FUND
The bar chart and tables that follow provide an indication of the risks of
investing in Strategic Income Fund by showing (on a calendar year basis)
Strategic Income Fund's annual total return and by showing (on a calendar year
basis) how Strategic Income Fund's average annual returns for one year and since
inception compare to those of the Lehman Aggregate Bond Index. The information
in the bar chart is based on the performance of the Class A shares of Strategic
Income Fund although the bar chart does not reflect the deduction of the sales
load on Class A shares. If the bar chart included the sales load, returns would
be less than those shown. The Fund's past performance is not necessarily an
indication of how the Fund will perform in the future. Total returns include
reinvestment of dividends and capital gains distributions, if any. All indices
are unmanaged.
CALENDAR YEAR-BY-YEAR RETURNS(1),(2)
1999(3)
----
-1.16%
----------
(1) During the period shown in the chart, the Fund's best quarterly performance
was 0.81% for the quarter ended December 31, 1999, and the Fund's worst
quarterly performance was -1.23% for the quarter ended June 30, 1999. The
Fund's year-to-date total return as of September 30, 2000 was 2.49%.
(2) Prior to May 24, 1999, a different adviser managed the Fund.
(3) Fund commenced operations on July 27, 1998.
The table below shows what the average annual total returns of Strategic
Income Fund would equal if you averaged out actual performance over various
lengths of time, compared to the Lehman Aggregate Bond Index. The Lehman
Aggregate Bond Index has an inherent performance advantage over Strategic Income
Fund since it has no cash in its portfolio, imposes no sales charges and incurs
no operating expenses. An investor cannot invest directly in an index. Strategic
Income Fund's performance reflected in the table below assumes the deduction of
the maximum sales charge in all cases.
AVERAGE ANNUAL TOTAL RETURNS for the periods ended December 31, 1999
SINCE
1 YEAR INCEPTION(5)
------ ------------
Strategic Income Fund - Class A (1) -5.83% -1.74%
Strategic Income Fund - Class B (2) -6.15% -1.29%
Strategic Income Fund - Class C (3) -2.46% 1.31%
Strategic Income Fund - Class Q -0.97% 1.90%
Lehman Aggregate Bond Index(4) -0.82% 2.37%
----------
(1) Reflects deduction of sales charge of 4.75%.
(2) Reflects deduction of deferred sales charge of 5% and 4%, respectively, for
the 1 year and since inception returns.
(3) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(4) The Lehman Aggregate Bond Index is an unmanaged index that measures the
performance of fixed income securities that are similar, but not identical,
to those in the Fund's portfolio.
(5) Classes A, B, C and Q commenced operations on July 27, 1998.
13
<PAGE>
The table below shows the performance of Strategic Income Fund if sales
charges are not reflected.
AVERAGE ANNUAL TOTAL RETURNS for the periods ended December 31, 1999
SINCE
1 YEAR INCEPTION(1)
------ ------------
Strategic Income Fund - Class A -1.16% 1.65%
Strategic Income Fund - Class B -1.50% 1.31%
Strategic Income Fund - Class C -1.53% 1.31%
Strategic Income Fund - Class Q -0.97% 1.90%
----------
(1) Classes A, B, C, and Q commenced operations on July 27, 1998.
For a discussion by the adviser regarding the performance of Strategic
Income Fund for the year ended June 30, 2000, see Appendix A in this Proxy
Statement/Prospectus. Additional information about Strategic Income Fund is
included in Appendix C to this Proxy Statement/Prospectus.
INFORMATION ABOUT THE REORGANIZATION
THE REORGANIZATION AGREEMENT. The Reorganization Agreement provides for the
transfer of all of the assets and liabilities of Global Income Fund to Strategic
Income Fund in exchange for shares of Strategic Income Fund. Global Income Fund
will distribute the shares of Strategic Income Fund received in the exchange to
the shareholders of the Global Income Fund and then Global Income Fund will be
liquidated.
After the Reorganization, each shareholder of Global Income Fund will own
shares in Strategic Income Fund having an aggregate value equal to the aggregate
value of each respective class of shares in Global Income Fund held by that
shareholder as of the close of business on the business day of the Closing.
Shareholders of each Class of shares of Global Income Fund will receive shares
of the same class of Strategic Income Fund. In the interest of economy and
convenience, shares of Strategic Income Fund generally will not be represented
by physical certificates unless requested in writing.
Until the Closing, shareholders of Global Income Fund will continue to be
able to redeem their shares. Redemption requests received after the Closing will
be treated as requests received by Strategic Income Fund for the redemption of
its shares received by the shareholder in the Reorganization.
The obligations of the Funds under the Reorganization Agreement are subject
to various conditions, including approval of the shareholders of Global Income
Fund. The Reorganization Agreement also requires that each of the Funds take, or
cause to be taken, all action, and do or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective the transactions
contemplated by the Reorganization Agreement. The Reorganization Agreement may
be terminated by mutual agreement of the parties or on certain other grounds.
Please refer to Appendix B to review the terms and conditions of the
Reorganization Agreement.
REASONS FOR THE REORGANIZATION. The Reorganization is one of many
reorganizations that are proposed among various Pilgrim Funds. The Pilgrim Fund
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 they believe have similar or compatible investment policies. The
proposed reorganizations are designed to reduce the overlap in funds offered by
the Pilgrim Funds, 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.
14
<PAGE>
Another reason for the Reorganization of Global Income Fund is that
management currently believes that international bonds are not an attractive
asset class for U.S. investors, and a global bond fund is not likely to attract
sufficient assets to become a viable mutual fund, whereas a fund that invests in
international bonds as well as other types of fixed-income instruments,
including domestic fixed-income instruments, has greater potential to become
viable fund.
The proposed Reorganization was presented to the Board of Trustees of
Global Income Fund for consideration and for 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 Global Income Fund, determined that the interests of the
shareholders of Global Income Fund will not be diluted as a result of the
proposed Reorganization, and that the proposed Reorganization is in the best
interests of Global Income Fund and its shareholders.
The Reorganization will allow Global Income Fund's shareholders to continue
to participate in a professionally-managed portfolio consisting primarily of
domestic and foreign debt securities. As shareholders of Global Income Fund,
these shareholders will continue be able to exchange into other mutual funds in
the larger 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 Reorganization is contained
in Appendix D.
BOARD CONSIDERATIONS. The Board of Trustees of Global Income Fund, in
recommending the proposed transaction, considered a number of factors, including
the following:
(1) the plans of Management to reduce overlapping funds in the Pilgrim
Fund complex.
(2) Management's current belief that international bonds are not an
attractive asset class for U.S. investors, and a global bond fund is
not likely to attract sufficient assets to become a viable mutual
fund;
(3) expense ratios and information regarding fees and expenses of Global
Income Fund and Strategic Income Fund, including the expense
limitation arrangements offered by ING Pilgrim Investments;
(4) 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 Strategic Income Fund;
(5) whether the Reorganization would dilute the interests of Global Income
Fund's current shareholders;
(6) the relative investment performance and risks of Strategic Income Fund
as compared to the Global Income Fund;
(7) the comparability of Strategic Income Fund's investment objectives,
policies and restrictions with those of Global Income Fund; and
(8) the tax-free nature of the Reorganization to Global Income Fund and
its shareholders.
The Board of Trustees also considered the future potential benefits to ING
Pilgrim Investments in that its costs to limit the expenses of Strategic Income
Fund are likely to be reduced if the Reorganization is approved.
THE TRUSTEES OF GLOBAL INCOME FUND RECOMMEND THAT SHAREHOLDERS APPROVE THE
REORGANIZATION WITH STRATEGIC INCOME FUND.
15
<PAGE>
TAX CONSIDERATIONS. The Reorganization is intended to qualify for Federal
income tax purposes as a tax-free reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended. Accordingly, pursuant to this
treatment, neither Global Income Fund nor its shareholders nor Strategic Income
Fund is expected to recognize any gain or loss for federal income tax purposes
from the transactions contemplated by the Reorganization Agreement. As a
condition to the Closing of the Reorganization, the Funds will receive an
opinion from the law firm of Dechert to the effect that the Reorganization will
qualify as a tax-free reorganization for Federal income tax purposes. That
opinion will be based in part upon certain assumptions and upon certain
representations made by the Funds.
Immediately prior to the Reorganization, Global Income Fund will pay a
dividend or dividends which, together with all previous dividends, will have the
effect of distributing to its shareholders all of Global Income Fund's
investment company taxable income for taxable years ending on or prior to the
Reorganization (computed without regard to any deduction for dividends paid) and
all of its net capital gain, if any, realized in taxable years ending on or
prior to the Reorganization (after reduction for any available capital loss
carryforward). Such dividends will be included in the taxable income of Global
Income Fund's shareholders.
As of June 30, 2000, Strategic Income Fund had accumulated capital loss
carryforwards of approximately $812,559. After the Reorganization, the losses of
Strategic Income Fund will be available to Strategic Income Fund to offset its
capital gains, although the amount of these losses which may offset Strategic
Income Fund's future capital gains in any given year may be limited. The ability
of Strategic Income Fund to absorb losses in the future depends upon a variety
of factors that cannot be known in advance, including the existence of capital
gains against which these losses may be offset. In addition, the benefits of any
of Strategic Income Fund's capital loss carryforwards currently are available
only to pre-reorganization shareholders of that Fund. After the Reorganization,
however, these benefits will inure to the benefit of all post-reorganization
shareholders of Strategic Income Fund.
EXPENSES OF THE REORGANIZATION. ING Pilgrim Investments, Adviser to Global
Income Fund, will bear half the cost of the Reorganization. The Funds will bear
the other half of the expenses related to the proposed Reorganization,
including, but not limited to, the costs of solicitation of voting instructions
and any necessary filings with the Securities and Exchange Commission. Of the
Reorganization expenses allocated to the Funds, each Fund will bear a ratable
portion based on its relative net asset values immediately before Closing.
ADDITIONAL INFORMATION ABOUT THE FUNDS
FORM OF ORGANIZATION. Strategic Income Fund is a series of Pilgrim Mutual
Funds, which is a Delaware business trust. Global Income Fund is a Massachusetts
business trust. Pilgrim Mutual Funds and Global Income Fund are each governed by
a Board of Trustees consisting of eleven Trustees. The members of both Boards
are identical.
DISTRIBUTOR. ING Pilgrim Securities, Inc., whose address is 7337 E.
Doubletree Ranch Road, Scottsdale, Arizona 85258, is the principal distributor
for both Funds.
16
<PAGE>
DIVIDENDS AND OTHER DISTRIBUTIONS. Global Income Fund pays dividends from
net investment income, if any, on a quarterly basis and capital gains, if any,
on an annual basis. Strategic Income Fund pays dividends from net investment
income, if any, on a monthly basis and capital gains, if any, on an annual
basis. Dividends and distributions of each of the Funds are automatically
reinvested in additional shares of the respective Class of the particular Fund,
unless the shareholder elects to receive distributions in cash.
If the Reorganization Agreement is approved by Global Income Fund's
shareholders, then as soon as practicable before the Closing, Global Income Fund
will pay its shareholders a cash distribution of substantially all undistributed
net investment income and undistributed realized net capital gains.
CAPITALIZATION. The following table shows on an unaudited basis the
capitalization of each of the Funds as of June 30, 2000 and on a PRO FORMA basis
as of June 30, 2000 giving effect to the Reorganization:
NET ASSET VALUE SHARES
NET ASSETS PER SHARE OUTSTANDING
---------- --------- -----------
GLOBAL INCOME FUND(1)
Class A $30,173,826 $ 9.31 3,240,512
STRATEGIC INCOME FUND
Class A $ 2,726,254 $12.07 225,777
Class B $ 4,460,163 $11.80 377,987
Class C $ 3,966,076 $12.30 322,466
Class Q $ 227,691 $11.45 19,891
PRO FORMA - STRATEGIC INCOME FUND
INCLUDING GLOBAL INCOME FUND
Class A $32,900,080 $12.07 2,725,773
Class B $ 4,460,163 $11.80 377,987
Class C $ 3,966,076 $12.30 322,466
Class Q $ 227,691 $11.45 19,891
----------
(1) Class B, Class C, and Class Q Shares of Global Income Fund were not offered
as of June 30, 2000.
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 _______, 2000.
Shareholders of Global Income Fund whose shares are held by nominees, such as
brokers, can vote their proxies by contacting their respective nominee. In
addition to the solicitation of proxies by mail, employees of ING Pilgrim
Investments and its affiliates, without additional compensation, may solicit
proxies in person or by telephone, telegraph, facsimile, or oral communication.
Global Income Fund has retained Shareholder Communications Corporation, a
professional proxy solicitation firm, to assist with any necessary solicitation
of proxies. Shareholders of Global Income Fund may receive a telephone call from
the professional proxy solicitation firm asking the shareholder to vote.
17
<PAGE>
A shareholder may revoke the accompanying proxy at any time prior to its
use by filing with Global Income Fund a written revocation or duly executed
proxy bearing a later date. In addition, any shareholder who attends the Special
Meeting in person may vote by ballot at the Special 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 Global Income Fund that may be presented at
the Special Meeting.
VOTING RIGHTS
Shareholders of Global Income Fund are entitled to one vote for each share
held as to any matter on which they are entitled to vote and each fractional
share shall be entitled to a proportionate fractional vote. Shares have no
preemptive or subscription rights.
Shareholders of Global Income Fund at the close of business on _________,
2000 (the "Record Date") will be entitled to be present and give voting
instructions for Global Income Fund at the Special Meeting with respect to their
shares owned as of that Record Date. As of the Record Date, ______ shares of
Global Income Fund were outstanding and entitled to vote.
Approval of the Reorganization requires the affirmative vote of a majority
of the outstanding shares of Global Income Fund.
The holders of the 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 Special Meeting from time to time until a quorum is present.
If a shareholder abstains from voting as to any matter, or if a broker
returns a "non-vote" proxy, indicating a lack of authority to vote on a matter,
the shares represented by the abstention or non-vote will be deemed present at
the Special Meeting for purposes of determining a quorum. However, abstentions
and broker non-votes will not be deemed represented at the Special Meeting for
purposes of calculating the vote on any matter. As a result, an abstention or
broker non-vote will have the same effect as a vote against the Reorganization.
Global Income Fund expects that, before the Special Meeting, broker-dealer
firms holding shares of the Fund in "street name" for their customers will
request voting instructions from their customers and beneficial owners. If these
instructions are not received by the date specified in the broker-dealer firms'
proxy solicitation materials, Global Income Fund understands that the
broker-dealers that are members of the New York Stock Exchange may vote on the
items to be considered at the Special Meeting on behalf of their customers and
beneficial owners under the rules of the New York Stock Exchange.
To the knowledge of Global Income Fund, as of November 1, 2000, no current
Trustee owns 1% or more of the outstanding shares of Global Income Fund, and the
officers and Trustees own, as a group, less than 1% of the shares of Global
Income Fund.
Appendix E hereto lists the persons that, as of November 1, 2000, owned
beneficially or of record 5% or more of the outstanding shares of any Class of
Global Income Fund or Strategic Income Fund.
18
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OTHER MATTERS TO COME BEFORE THE SPECIAL MEETING
Global Income Fund does not know of any matters to be presented at the
Special Meeting other than those described in this Proxy Statement/Prospectus.
If other business should properly come before the Special Meeting, the
proxyholders will vote thereon in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Global Income Fund is not required to hold regular annual meetings and, in
order to minimize its costs, does not intend to hold meetings of shareholders
unless so required by applicable law, regulation, regulatory policy or if
otherwise deemed advisable by Global Income Fund's management. Therefore it is
not practicable to specify a date by which shareholder proposals must be
received in order to be incorporated in an upcoming proxy statement for an
annual meeting.
REPORTS TO SHAREHOLDERS
Global Income Fund will furnish, without charge, a copy of the most recent
Annual Report regarding Global Income Fund and the most recent Semi-Annual
Report succeeding the Annual Report, if any, on request. Requests for such
reports should be directed to Global Income Fund at 7337 East Doubletree Ranch
Road, Scottsdale, Arizona 85258 or at 1-800-992-0180.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED,
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
James M. Hennessy
Secretary
__________, 2000
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
19
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APPENDIX A
STRATEGIC INCOME FUND
Set forth below is an excerpt from Pilgrim Strategic Income Fund's Annual
Report, dated June 30, 2000, regarding the Fund's performance.
MANAGEMENT TEAM: Robert Kinsey, Vice President & Senior Portfolio Manager;
Kevin Mathews, Vice President & Senior Portfolio Manager; Charles Ullerich, Vice
President & Portfolio Manager.
GOALS: Pilgrim Strategic Income Fund (the "Fund" or "Strategic Income")
seeks maximum total return by investing primarily in debt securities issued by
U. S. and foreign entities, as well as U. S. and foreign governments and their
agencies and instrumentalities, that are rated investment grade by a nationally
recognized statistical rating agency, or of comparable quality if unrated. Up to
40% of the Fund's assets may be invested in high yield securities rated below
investment grade.
BOND MARKET OVERVIEW: The high quality bond market experienced
extraordinary bouts of illiquidity up until the latter part of the second
quarter 2000. While weakness in the equity market boded well for U. S.
Treasuries, a number of corporate bonds were pummelled by earnings warnings and
downgrades. Event risk returned to the corporate market with a vengeance,
raising the ugly specter of credit-damaging shareholder enhancement programs.
Credit-harming mergers and acquisitions also made headlines. However, the
successful completion of several record-breaking new issues marked the
turnaround in spread product by late May. Agencies faced some very rough
sledding early in 2000 as a congressional committee and political pundits
questioned the unique relationship between the Treasury Department, Fannie Mae
(FNMA) and Freddie Mac (FHLMC). Despite numerous Federal Reserve Bank
tightenings, long-term Treasuries have been well bid in the face of government
buybacks and signs that the domestic economy is slowing.
The first half of 2000 was better than the second half of 1999, but not by
much. The negative returns of 1999 were succeeded by flat returns in 2000. High
yield bond prices continued to decline in the first half of 2000, but when
combined with coupon income, total returns on the sector came close to zero.
Federal Open Market Committee (FOMC) policy continued the tightening bias
of 1999 with further interest rate increases in the first half of 2000. After
raising the Federal Reserve Bank Funds target rate from 5% to 5.5% in the second
half of 1999, the FOMC raised rates from 5.5% to 6.5% in the first half of 2000.
The FOMC continues to be concerned that the domestic economy is growing too
quickly and that the result might be increased inflation. Much of the price
behavior in the high yield market can be directly attributed to participants
fear that the Federal Reserve Bank will over-tighten, pushing the economy into a
recession.
Through the year ended June 30, 2000, the ten-year Treasury yield was
basically unchanged yielding just below 6% at the beginning of the period and
just above 6% at the end of the period. High yield bonds, reflecting the
increased risk premium demanded by the market, rose in yield, falling in price
over the same time period. Spreads remained virtually unchanged from the
beginning to the end of the second half of 1999, but widened by 100 to 125 basis
points on most of the major high yield indices in the first half of 2000. This
activity reflected the fear of recession as well as rising default rates,
declining recovery rates, and weak technical conditions resulting from mutual
fund net redemptions. Mutual fund outflows totaled in excess of $6 billion in
the first half of 2000, although trends have been more positive in the latter
half with sales outpacing redemptions.
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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 3.42% compared to
the Lehman Brothers Aggregate Index which returned 4.57% for the same period.
PORTFOLIO SPECIFICS: A significant commitment to U. S. Treasuries on the
heels of the government's buyback announcement boosted returns. Following the
under-performance of corporate bonds in the early part of the year, we added
Lucent, Wal-Mart, and insured Banco Santander paper along with several agency
debentures in May. We maintained our presence in puttable corporates.
The Fund outperformed most of it's peers over the past year due to a large
concentration in the Communications sector. The best performing credits were
those on the leading edge of telecommunication technology including providers of
digital subscriber lines, wireless voice and internet/data connectivity, and
firms that provide access technology for internet data sites. Equally important
has been the avoidance of sectors that have significantly underperformed the
market including Healthcare, Food & Drug, and Retail credits.
Credit quality has played a role in performance the last twelve months.
Double-B issues have significantly outperformed the market while Triple-C's have
underperformed. The Fund's average credit quality weighting of Single-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: Agency debentures offer excellent relative value especially
now that Congress is unlikely to move against the government sponsored
enterprises anytime soon. Despite the strong rally relative to Treasuries and
swaps, we feel that selective corporate bonds are cheap. We continue to avoid
event risk candidates and long-dated corporate paper, and we focus on larger
more liquid issues. Recent economic data point to a recent Federal Reserve
Bank-engineered slowdown, and the market consensus is for only one more
tightening. Consequently the surprise, non-consensus, outcome seems to poise the
greatest risk to interest rates. Nevertheless, we are slightly long in duration,
but would trim that to neutral if rates rally significantly.
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Our outlook is cautious as we continue to witness an FOMC that has a bias
to tighten monetary policy. The danger of recession is real as the Federal
Reserve Bank typically creates a soft-landing, or a slowing of economic growth
and inflation without a recession, about 50% of the time once they begin
tightening. When they create a recession, the results can be problematic for
high yield bonds. We have also taken note of the increasingly tough stance taken
by banks and other lenders on not being willing to waive convenant violations.
This causes high yield credits to get into trouble faster as there is less
forbearance on the part of senior bank lenders. Finally, the high yield market
itself is less forgiving. Quality names will snap back with the market, marginal
credits will eventually recover if investors wait, but weak issuers are given no
benefit of the doubt. Weak issues can not hide behind general market trends.
Given this, it becomes obvious it is a credit pickers market. Diligence in the
credit review and monitoring process has become key to maintaining returns above
the benchmark averages.
[The plot point numbers below represent a line graph]
7/27/98 6/99 6/30/00
------- ---- -------
Pilgrim Strategic Income Fund
Class A With Sales Charge 10,000 9,739 10,073
Pilgrim Strategic Income Fund
Class A Without Sales Charge 10,000 10,223 10,574
Lehman Brothers Aggregate Index 10,000 10,293 10,763
Average Annual Total Returns for
the Periods Ended June 30, 2000
-------------------------------
Since Inception
1 Year 7/27/98
------ -------
Including Sales Charge:
Class A (1) -1.49% 0.38%
Class B (2) -2.00% 0.64%
Class C (3) 2.02% 2.54%
Excluding Sales Charge:
Class A 3.42% 2.93%
Class B 3.00% 2.53%
Class C 3.02% 2.54%
Lehman Brothers Aggregate Index 4.57% 3.91%(4)
Based on a $10,000 initial investment, the graph and table above illustrate
the total return of Pilgrim Strategic Income Fund against the Lehman Brothers
Aggregate Index. The Index has an inherent performance advantage over the Fund
since it has no cash in its portfolio, imposes no sales charges and incurs no
operating expenses. An investor cannot invest directly in 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.
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Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This letter contains statements that may be "forward-looking" statements.
Actual results may differ materially from those projected in the
"forward-looking" statements.
The views expressed in this report reflect those of the portfolio manager,
only through the end of the period as stated on the cover. The portfolio
manager's views are subject to change at any time based on market and other
conditions.
Portfolio holdings are subject to change daily.
(1) Reflects deduction of the maximum Class A sales charge of 4.75%.
(2) Reflects deduction of the Class B deferred sales charge of 5% and 4%,
respectively, for the 1 year and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1.00%.
(4) Since inception performance for index is shown from 08/01/98.
PRINCIPAL RISK FACTOR(S): High yield bonds have exposure to financial,
market and interest rate risks. High yields reflect the higher credit risks
associated with certain lower rated securities in the Fund's portfolio, and in
some cases, the lower market prices for those instruments. The Fund's
investments in mortgage-related securities may entail prepayment risk. The Fund
may invest up to 30% of its total assets in securities payable in foreign
currencies. International investing does pose special risks, including currency
fluctuation and political risks not found in domestic investments.
A-4
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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 (the
"Trust"), a Delaware business trust with its principal place of business at 7337
E. Doubletree Ranch Road, Scottsdale, Arizona 85258, on behalf of its series,
Pilgrim Strategic Income Fund (the "Acquiring Fund"), and Pilgrim Global Income
Fund (the "Acquired Fund"), a Massachusetts business trust with its principal
place of business at 7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for Class A, Class B,
Class C, and Class Q 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 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 Acquired Fund have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the Acquired Fund and its shareholders and that the
interests of the existing shareholders of the Acquired Fund would not be diluted
as a result of this transaction;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1 Subject to the requisite approval of the Acquired Fund shareholders and
the other terms and conditions herein set forth and on the basis of the
representations and warranties contained herein, the Acquired Fund agrees to
transfer all of the Acquired Fund's assets, as set forth in paragraph 1.2, to
the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor: (i) to
deliver to the Acquired Fund the number of full and fractional Class A, Class B,
Class C, and Class Q Acquiring Fund Shares determined by dividing the value of
the Acquired Fund's net assets with respect to each class, computed in the
manner and as of the time and date set forth in paragraph 2.1, by the net asset
value of one Acquiring Fund Share of the same class, computed in the manner and
as of the time and date set forth in paragraph 2.2; and (ii) to assume all
liabilities of the Acquired Fund as set forth in paragraph 1.3. Such
transactions shall take place at the closing provided for in paragraph 3.1 (the
"Closing").
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1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all assets and property, including, without limitation, all
cash, securities, commodities and futures interests and dividends or interests
receivable that are owned by the Acquired Fund and any deferred or prepaid
expenses shown as an asset on the books of the Acquired Fund on the closing date
provided for in paragraph 3.1 (the "Closing Date") (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, as defined in
paragraph 2.1 (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, Class C, and Class Q Acquiring Fund Shares to be so credited
to Class A, Class B, Class C, and Class Q Acquired Fund Shareholders shall, with
respect to each class, be equal to the aggregate net asset value of the Acquired
Fund shares of that same class owned by such shareholders on the Closing Date.
All issued and outstanding shares of the Acquired Fund will simultaneously be
canceled on the books of the Acquired Fund, although share certificates
representing interests in Class A, Class B, Class C, and Class Q shares of the
Acquired Fund will represent a number of the same class of Acquiring Fund Shares
after the Closing Date, as determined in accordance with Section 2.3. The
Acquiring Fund shall not issue certificates representing the Class A, Class B,
Class C, and Class Q Acquiring Fund Shares in connection with such exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent.
1.6 Any reporting responsibility of the Acquired Fund including, but not
limited to, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
2. VALUATION
2.1 The value of the Assets shall be the value computed as of immediately
after the close of business of the New York Stock Exchange and after the
declaration of any dividends on the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures in the
then-current prospectus and statement of additional information with respect to
the Acquiring Fund, and valuation procedures established by the Acquiring Fund's
Board of Trustees.
2.2 The net asset value of a Class A, Class B, Class C, and Class Q
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
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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, Class C, and Class Q Acquiring Fund
Shares to be issued (including fractional shares, if any) in exchange for the
Acquired Fund's assets shall be determined with respect to each such class by
dividing the value of the net assets with respect to the Class A, Class B, Class
C, and Class Q 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
auditors.
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 Brown Brothers Harriman & Co., as
custodian for the Acquired Fund (the "Custodian"), to deliver, at the Closing, a
certificate of an authorized officer stating that (i) 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 Custodian shall deliver as of the Closing Date by book
entry, in accordance with the customary practices of any securities depository,
as defined in Rule 17f-4 under the Investment Company Act of 1940, as amended
(the "1940 Act") in which the Acquired Fund's Assets are deposited and the
Custodian, the Acquired Fund's Assets deposited with such depositories. The cash
to be transferred by the Acquired Fund shall be delivered by wire transfer of
federal funds on the Closing Date.
3.3 The Acquired Fund shall direct DST Systems, Inc. (the "Transfer
Agent"), on behalf of the Acquired Fund, to deliver at the Closing a certificate
of an authorized officer stating that its records contain the names and
addresses of the Acquired Fund Shareholders and the number and percentage
ownership of outstanding Class A, Class B, Class C, and Class Q shares owned by
each such shareholder immediately prior to the Closing. The Acquiring Fund shall
issue and deliver a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Secretary of the Acquiring Fund, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have
been credited to the Acquired Fund's account on the books of the Acquiring Fund.
At the Closing each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request.
3.4 In the event that on the Valuation Date (a) the New York Stock Exchange
or another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund, respectively, shall be closed to trading or trading
thereupon shall be restricted, or (b) trading or the reporting of trading on
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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 Acquired Fund, the Acquired Fund
represents and warrants to the Trust as follows:
(a) The Acquired Fund is a business trust duly organized, validly existing
and in good standing under the laws of the Commonwealth of Massachusetts with
power under the Acquired Fund's Declaration of Trust to own all of its
properties and assets and to carry on its business as it is now being conducted;
(b) The Acquired Fund is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act, and the registration of
its shares under the Securities Act of 1933, as amended ("1933 Act"), 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 previous to the date of this Agreement conforms or conformed
at the time of its use in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and does not or did not at the time of its use include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(e) On the Closing Date, the Acquired Fund will have good and marketable
title to the Assets and full right, power, and authority to sell, assign,
transfer and deliver such assets hereunder free of any liens or other
encumbrances, and upon delivery and payment for such Assets, the Acquiring Fund
will acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under the
1933 Act, other than as disclosed to the Acquiring Fund;
(f) The Acquired Fund is not engaged currently, and the execution, delivery
and performance of this Agreement will not result, in (i) a material violation
of the Acquired Fund's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquired Fund is a party or by which it is bound, or (ii) the acceleration of
any obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to which the Acquired
Fund is a party or by which it is bound;
(g) 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 Trust,
no litigation or administrative proceeding or investigation of or before any
court or governmental body is presently pending or, to its knowledge, threatened
against the Acquired Fund or any of its properties or assets that, if adversely
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<PAGE>
determined, would materially and adversely affect its financial condition or the
conduct of its business. The Acquired Fund knows of no facts which might form
the basis for the institution of such proceedings and is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or its
ability to consummate the transactions herein contemplated;
(i) The Statement of Assets and Liabilities, Statements of Operations and
Changes in Net Assets, and Portfolio of Investments of the Acquired Fund at
December 31, 1999 have been audited by KPMG 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 December 31, 1999, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund. For the purposes of this subparagraph (j), a
decline in net asset value per share of the Acquired Fund due to declines in
market values of securities in the Acquired Fund's portfolio, the discharge of
Acquired Fund liabilities, or the redemption of Acquired Fund Shares by
shareholders of the Acquired Fund shall not constitute a material adverse
change;
(k) On the Closing Date, all Federal and other tax returns, dividend
reporting forms, and other tax-related reports of the Acquired Fund required by
law to have been filed by such date (including any extensions) shall have been
filed and are or will be correct in all material respects, and all Federal and
other taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge, no such return is
currently under audit and no assessment has been asserted with respect to such
returns;
(l) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met (or will meet) the
requirements of Subchapter M of the Code for qualification as a regulated
investment company, has been (or will be) eligible to and has computed (or will
compute) its federal income tax under Section 852 of the Code, and will have
distributed all of its investment company taxable income and net capital gain
(as defined in the Code) that has accrued through the Closing Date, and before
the Closing Date will have declared dividends sufficient to distribute all of
its investment company taxable income and net capital gain for the period ending
on the Closing Date;
(m) All issued and outstanding shares of beneficial interest 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 beneficial interest 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;
B-5
<PAGE>
(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 Trust, the Trust, on behalf of the
Acquiring Fund, represents and warrants to the Acquired Fund as follows:
(a) The Acquiring Fund is duly organized as a series of the 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 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 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;
B-6
<PAGE>
(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 Trust's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the 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 Trust, on behalf of the Acquiring Fund, is a party or by which it is bound;
(g) Except as otherwise disclosed in writing to and accepted by the
Acquired Fund, no litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its knowledge,
threatened against the Acquiring Fund or any of 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
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 its
ability to consummate the transactions herein contemplated;
(h) The Statement of Assets and Liabilities, Statements of Operations and
Changes in Net Assets and Portfolio of Investments of the Acquiring Fund at June
30, 2000, have been audited by KPMG LLP, independent auditors, and are in
accordance with GAAP consistently applied, and such statements (copies of which
have been furnished to the Acquired Fund) present fairly, in all material
respects, the financial condition of the Acquiring Fund as of such date in
accordance with GAAP, and there are no known contingent liabilities of the
Acquiring Fund required to be reflected on a balance sheet (including the notes
thereto) in accordance with GAAP as of such date not disclosed therein;
(i) Since June 30, 2000, there has not been any material adverse change in
the Acquiring Fund's financial condition, assets, liabilities or business, other
than changes occurring in the ordinary course of business, or any incurrence by
the Acquiring Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed to and accepted by
the Acquired Fund. For purposes of this subparagraph (i), a decline in net asset
value per share of the Acquiring Fund due to declines in market values of
securities in the Acquiring Fund's portfolio, the discharge of Acquiring Fund
liabilities, or the redemption of Acquiring Fund Shares by shareholders of the
Acquiring Fund, shall not constitute a material adverse change;
(j) On the Closing Date, all Federal and other tax returns, dividend
reporting forms, and other tax-related reports of the Acquiring Fund required by
law to have been filed by such date (including any extensions) shall have been
filed and are or will be correct in all material respects, and all Federal and
other taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof, and to the best of the Acquiring Fund's knowledge no such return is
currently under audit and no assessment has been asserted with respect to such
returns;
(k) For each taxable year of its operation (including the Taxable Year that
includes the Closing Date), the Acquiring Fund has met (or will meet) the
requirements of Subchapter M of the Code for qualification as a regulated
investment company, has been eligible to and has computed (or will compute) its
federal income tax under Section 852 of the Code and has distributed all of its
investment company taxable income and net capital gain (as defined in the Code)
for periods ending prior to the Closing Date;
B-7
<PAGE>
(l) All issued and outstanding Acquiring Fund Shares are, and on the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable by the Trust and have been offered and sold in every state and
the District of Columbia in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws. The
Acquiring Fund does not have outstanding any options, warrants or other rights
to subscribe for or purchase any Acquiring Fund Shares, nor is there outstanding
any security convertible into any Acquiring Fund Shares;
(m) The execution, delivery and performance of this Agreement will have
been fully authorized prior to the Closing Date by all necessary action, if any,
on the part of the Trustees of the Trust, on behalf of the Acquiring Fund, and
this Agreement will constitute a valid and binding obligation of the Acquiring
Fund, enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(n) The Class A, Class B, Class C, and Class Q Acquiring Fund Shares to be
issued and delivered to the Acquired Fund, for the account of the Acquired Fund
Shareholders, pursuant to the terms of this Agreement, will on the Closing Date
have been duly authorized and, when so issued and delivered, will be duly and
validly issued Acquiring Fund Shares, and will be fully paid and non-assessable
by the Trust;
(o) The information to be furnished by the Acquiring Fund for use in the
registration statements, proxy materials and other documents that may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations applicable
thereto; and
(p) That insofar as it relates to the Acquiring Fund, the Registration
Statement relating to the Acquiring Fund Shares issuable hereunder, 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, Class C, and
Class Q Acquiring Fund Shares to be issued hereunder are not being acquired for
the purpose of making any distribution thereof, other than in accordance with
the terms of this Agreement.
B-8
<PAGE>
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, Class C, and Class Q Acquiring Fund Shares received at the
Closing.
5.8 The Acquiring Fund and the Acquired Fund shall each use its reasonable
best efforts to fulfill or obtain the fulfillment of the conditions precedent to
effect the transactions contemplated by this Agreement as promptly as
practicable.
5.9 The Acquired Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquiring Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments, and will
take or cause to be taken such further action as the Trust, on behalf of the
Acquiring Fund, may reasonably deem necessary or desirable in order to vest in
and confirm (a) the Acquired Fund's title to and possession of, the Acquiring
Fund Shares to be delivered hereunder and (b) the Trust's, on behalf of the
Acquiring Fund's, title to and possession of all the assets, and otherwise to
carry out the intent and purpose of this Agreement.
5.10 The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state blue sky or securities laws as may be necessary in order to continue
its operations after the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at the Acquired Fund's election, to the
performance by the 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 Trust, on behalf of the
Acquiring Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date;
6.2 The 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 Acquired Fund and
dated as of the Closing Date, to the effect that the representations and
warranties of the 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 Acquired Fund shall reasonably request;
B-9
<PAGE>
6.3 The Trust, on behalf of 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 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 Trust, on behalf of the Acquiring Fund, to complete
the transactions provided for herein shall be subject, at the Trust's election,
to the performance by the Acquired Fund of all of the obligations to be
performed by it hereunder on or before the Closing Date and, in addition
thereto, the following conditions:
7.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date;
7.2 The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities, as of the Closing Date,
certified by the Treasurer of the Acquired Fund;
7.3 The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Trust and dated as of the Closing Date, to the effect that
the representations and warranties of the Acquired Fund made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as the Trust shall reasonably request;
7.4 The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date;
7.5 The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each Class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1;
7.6 The Acquired Fund shall have declared and paid a distribution or
distributions prior to the Closing that, together with all previous
distributions, shall have the effect of distributing to its shareholders (i) all
of its investment company taxable income and all of its net realized capital
gains, if any, for the period from the close of its last fiscal year to 4:00
p.m. Eastern time on the Closing; and (ii) any undistributed investment company
taxable income and net realized capital gains from any period to the extent not
otherwise already distributed.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below have not been satisfied on or
before the Closing Date with respect to the Acquired Fund or the Acquiring Fund,
the other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement:
B-10
<PAGE>
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Acquired Fund's
Declaration of Trust, By-Laws, applicable Massachusetts law and the 1940 Act,
and certified copies of the resolutions evidencing such approval shall have been
delivered to the Acquiring Fund. Notwithstanding anything herein to the
contrary, neither the Trust nor the Acquired Fund may waive the conditions set
forth in this paragraph 8.1;
8.2 On the Closing Date no action, suit or other proceeding shall be
pending or, to its knowledge, threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain damages or other relief
in connection with, this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Trust or the Acquired Fund to permit consummation, in all material respects,
of the transactions contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a risk of
a material adverse effect on the assets or properties of the Acquiring Fund or
the Acquired Fund, provided that either party hereto may for itself waive any of
such conditions;
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and
8.5 The parties shall have received the opinion of Dechert addressed to the
Acquired Fund and the 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 Trust and the Acquired Fund.
Notwithstanding anything herein to the contrary, neither the Trust nor the
Acquired Fund may waive the condition set forth in this paragraph 8.5.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust, on behalf of the Acquiring Fund, and 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 Acquiring Fund and Acquired Fund as of the close of
business on the record date for determining the shareholders of the Acquired
Fund entitled to vote on the Reorganization. The costs of the Reorganization
shall include, but not be limited to, costs associated with obtaining any
necessary order of exemption from the 1940 Act, preparation of the Registration
Statement, printing and distributing the Acquiring Fund's prospectus and the
Acquired Fund's proxy materials, legal fees, accounting fees, securities
registration fees, and expenses of holding shareholders' meetings.
Notwithstanding any of the foregoing, expenses will in any event be paid by the
party directly incurring such expenses if and to the extent that the payment by
another person of such expenses would result in the disqualification of such
party as a "regulated investment company" within the meaning of Section 851 of
the Code.
B-11
<PAGE>
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust and the Acquired Fund agree that neither party has made any
representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing shall survive the Closing.
11. TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
and abandoned by resolution of the Board of Trustees of the Acquired Fund or the
Board of Trustees of the Acquiring Fund at any time prior to the Closing 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 Acquired
Fund and the Trust; provided, however, that following the meeting of the
shareholders of the Acquired Fund called by the Acquired Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Class A, Class B,
Class C, and Class Q Acquiring Fund Shares to be issued to the Acquired Fund
Shareholders under this Agreement to the detriment of such shareholders without
their further approval.
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 Trust
or to the Acquired Fund, 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.
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<PAGE>
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 Trust or Acquired Fund personally, but shall bind
only the trust property of the Trust or Acquiring Fund, as provided in the
Declaration of Trust of the Trust or Acquired Fund. The execution and delivery
by such officers shall not be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the trust property of each party as provided in the Declaration of
Trust of each party.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
Attest: PILGRIM MUTUAL FUNDS on behalf
of its PILGRIM STRATEGIC
INCOME FUND series
___________________________ By: ___________________________
SECRETARY
Title: ________________________
Attest: PILGRIM GLOBAL INCOME FUND
___________________________ By: ___________________________
SECRETARY
Title: ________________________
B-13
<PAGE>
APPENDIX C
ADDITIONAL INFORMATION REGARDING PILGRIM STRATEGIC INCOME FUND
SHAREHOLDER GUIDE
PILGRIM PURCHASE OPTIONS(TM)
This Proxy Statement/Prospectus relates to four separate Classes of the
Pilgrim Strategic Income Fund ("Fund"): Class A, Class B, Class C, and Class Q,
each of which represents an identical interest in the Fund's investment
portfolio, but are offered with different sales charges and distribution (Rule
12b-1) and service fee arrangements. 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 Pilgrim Global Income
Fund shares held by you immediately prior to the Reorganization, and the period
that you held shares of Pilgrim Global Income Fund will be included in the
holding period of the Fund for purposes of calculating contingent deferred sales
charges and determining conversion rights. Purchases of the shares of the Fund
after the Reorganization will be subject to the sales load structure and
conversion rights discussed below.
The sales charges and fees for each Class of shares of the Fund are shown
and contrasted in the chart below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Q
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Initial Sales Charge on Purchases 4.75%(1) None None None
Contingent Deferred Sales Charge ("CDSC") None(2) 5.00%(3) 1.00%(4) None
Annual Service and Distribution (12b-1) Fees(5) 0.35% 0.75% 0.75% 0.25%
Maximum Purchase Unlimited $250,000 Unlimited Unlimited
Automatic Conversion to Class A N/A 8 Years N/A N/A
</TABLE>
----------
(1) Imposed upon purchase. Reduced for purchases of $50,000 and over.
(2) For investments of $1 million or more, a CDSC of no more than 1% may be
assessed on redemptions of shares that were purchased without an initial
sales charge. See "Class A Shares: Initial Sales Charge Alternative" in
this Appendix C.
(3) Imposed upon redemption within 6 years from purchase. Fee has scheduled
reductions after the first year. See "Class B Shares: Deferred Sales Charge
Alternative" in this Appendix C.
(4) Imposed upon redemption within 1 year from purchase.
(5) Annual asset-based distribution charge.
(6) Class B shares of the Fund issued to shareholders of Global Income 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 Global Income 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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<PAGE>
CLASS A SHARES: INITIAL SALES CHARGE ALTERNATIVE. Class A shares of the
Fund are sold at the net asset value ("NAV") per share in effect plus a sales
charge as described in the following table. For waivers or reductions of the
Class A shares sales charges, see "Special Purchases without a Sales Charge" and
"Reduced Sales Charges" 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 Reorganization
with respect to Class A shares of Global Income Fund that were subject to a CDSC
at the time of the Reorganization, will be subject to a CDSC of up to 1% for a
period of up to two years from the date of purchase of the original shares of
Global Income Fund.
REDUCED SALES CHARGES. An investor may immediately qualify for a reduced
sales charge on a purchase of Class A shares of the Fund or other open-end funds
in the Pilgrim Funds or ING Funds which offer Class A shares, or shares with
front-end sales charges ("Participating Funds") by completing the Letter of
Intent section of an Application to purchase Fund shares. Executing the Letter
of Intent expresses an intention to invest during the next 13 months a specified
amount, which, if made at one time, would qualify for a reduced sales charge. An
amount equal to the Letter of Intent amount multiplied by the maximum sales
charge imposed on purchases of the Fund and Class will be restricted within your
account to cover additional sales charges that may be due if your actual total
investment fails to qualify for the reduced sales charges. See the Statement of
Additional Information for the Fund for details on the Letter of Intent option
or contact the Shareholder Servicing Agent at (800) 992-0180 for more
information.
A sales charge may also be reduced by taking into account the current value
of your existing holdings in the Fund or any other open-end funds in the Pilgrim
Funds (excluding Pilgrim Money Market Fund) or ING 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.
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.
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<PAGE>
SPECIAL PURCHASES WITHOUT A SALES CHARGE. Class A shares may be purchased
without a sales charge by certain individuals and institutions. For additional
information, contact the Shareholder Servicing Agent at (800) 992-0180, or see
the Statement of Additional Information for the Fund.
CLASS B SHARES: DEFERRED SALES CHARGE ALTERNATIVE. Class B shares are
offered at their NAV per share without any initial sales charge. Class B shares
that are redeemed within six years of purchase, however, will be subject to a
CDSC as described in the table that follows. Class B shares of the Fund are
subject to distribution and service fees at an annual rate of 0.75% 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 Global Income Fund will
convert to Class A shares eight years after the purchase of the original shares
of Global Income Fund. For additional information on the CDSC and the conversion
of Class B, see the Fund's Statement of Additional Information.
CLASS C SHARES. Class C shares 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.
CLASS Q SHARES. Class Q shares are offered at NAV without a sales charge
to qualified retirement plans, financial and other institutions and "wrap
accounts." The minimum initial investment is $250,000, and the minimum
subsequent investment is $10,000. The ING Pilgrim Securities, Inc. (the
"Distributor") may waive these minimums from time to time.
WAIVERS OF CDSC. The CDSC will be waived in the following cases. In
determining whether a CDSC is applicable, it will be assumed that shares held in
the shareholder's account that are not subject to such charge are redeemed
first.
1) The CDSC will be waived in the case of redemption following the death or
permanent disability of a shareholder if made within one year of death or
initial determination of permanent disability. The waiver is available only for
those shares held at the time of death or initial determination of permanent
disability.
2) The CDSC also may be waived for Class B shares redeemed pursuant to a
Systematic Withdrawal Plan, as described in the Pilgrim Prospectus, up to a
maximum of 12% per year of a shareholder's account value based on the value of
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<PAGE>
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, the Distributor may
receive from the Fund an annual fee in connection with the offering, sale and
shareholder servicing of the Fund's Class A, Class B, Class C and Class Q
shares.
DISTRIBUTION AND SERVICING FEES. As compensation for services rendered and
expenses borne by the Distributor in connection with the distribution of shares
of the Fund and in connection with services rendered to shareholders of the
Fund, the Fund pays the Distributor servicing fees and distribution fees up to
the annual rates set forth below (calculated as a percentage of the Fund's
average daily net assets attributable to that class):
SERVICING FEE DISTRIBUTION FEE
------------- ----------------
Class A 0.25% 0.10%
Class B 0.25% 0.50%
Class C 0.25% 0.50%
Class Q 0.25% None
Fees paid under the Rule 12b-1 Plan may be used to cover the expenses of
the Distributor from the sale of Class A, Class B, Class C or Class Q shares of
the Fund, including payments to Authorized Dealers, and for shareholder
servicing. Because these fees are paid out of the Fund's assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
OTHER EXPENSES. In addition to the management fee and other fees described
previously, the Fund pays other expenses, such as legal, audit, transfer agency
and custodian fees, proxy solicitation costs, and the compensation of Trustees
who are not affiliated with ING Pilgrim Investments, Inc. ("ING Pilgrim
Investments"). Most Fund expenses are allocated proportionately among all of the
outstanding shares of that Fund. However, the Rule 12b-1 Plan fees for each
Class of shares are charged proportionately only to the outstanding shares of
that Class.
PURCHASING SHARES. The Fund reserves the right to liquidate sufficient
shares to recover annual Transfer Agent fees should the investor fail to
maintain his/her account value at a minimum of $1,000.00 ($250.00 for IRA's).
The minimum initial investment in the Fund is $1,000 ($250 for IRAs), and the
minimum for additional investment in the Fund is $100. The minimum initial
investment for a pre-authorized retirement plan is $100, plus monthly
investments of at least $100.
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<PAGE>
The Fund and the Distributor reserve the right to reject any purchase
order. Please note cash, travelers checks, third party checks, money orders and
checks drawn on non-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. Eastern 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, for short-term debt securities and for situations where market
quotations are deemed unreliable. The NAV per share of each Class of the Fund
will fluctuate in response to changes in market conditions and other factors.
Portfolio securities for which market quotations are readily available are
stated at market value. Short-term debt securities having a maturity of 60 days
or less are valued at amortized cost, unless the amortized cost does not
approximate market value. Securities prices may be obtained from automated
pricing services. When market quotations are not readily available or are deemed
unreliable, securities are valued at their fair value as determined in good
faith under the supervision of the Board of Trustees. Valuing securities at fair
value involves greater reliance on judgment than valuing securities that have
readily available market quotations. For information on valuing foreign
securities, see the Fund's Statement of Additional Information.
PRE-AUTHORIZED INVESTMENT PLAN. You may establish a pre-authorized
investment plan to purchase shares with automatic bank account debiting. For
further information on pre-authorized investment plans, contact the Shareholder
Servicing Agent at (800) 992-0180.
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 Co. ("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 in the Fund's Prospectus under "Purchase of Shares"
have been completed. If you purchase by wire, however, the order will be deemed
to be in proper form after the telephone notification and the federal funds wire
have been received. If you purchase by wire, you must submit an application form
in a timely fashion. If an order or payment by wire is received after the close
of regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern
Time), the shares will not be credited until the next business day.
You will receive a confirmation of each new transaction in your account,
which also will show you the number of shares of the Fund you own including the
number of shares being held in safekeeping by the Transfer Agent for your
account. You may rely on these confirmations in lieu of certificates as evidence
of your ownership. Certificates representing shares of the Fund will not be
issued unless you request them in writing.
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<PAGE>
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 one Class of the Fund generally may be exchanged for shares of
that same Class of any other open-end Pilgrim Fund or ING Fund without payment
of any additional sales charge. In most instances, if you exchange and
subsequently redeem your shares, any applicable CDSC will be based on the full
period of the share ownership. Shareholders exercising the exchange privilege
with any other open-end Pilgrim Fund or ING Fund should carefully review the
prospectus of that fund. Exchanges of shares are sales and may result in a gain
or loss for federal and state income tax purposes. You will automatically be
assigned the telephone exchange privilege unless you mark the box on the Account
Application that signifies you do not wish to have this privilege. The exchange
privilege is only available in states where shares of the fund being acquired
may be legally sold.
You will automatically have the ability to request an exchange by calling
the Shareholder Service Agent 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.
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.
With respect to Class Q shares, if you draw down a non-retirement account
so that its total value is less than the Fund minimum, you may be asked to
purchase more shares within 60 days. If you do not take action, the Fund may
close out your account and mail you the proceeds. Your account will not be
closed if its drop in value is due to the Fund's performance.
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<PAGE>
HOW TO REDEEM SHARES
Shares of the Fund will be redeemed at the NAV (less any applicable CDSC
and/or federal income tax withholding) next determined after receipt of a
redemption request in good form on any day the New York Stock Exchange is open
for business.
SYSTEMATIC WITHDRAWAL PLAN. You may elect to have monthly, quarterly,
semi-annual or annual payments in any fixed amount of $100 or more made to
yourself, or to anyone else you properly designate, as long as the account has a
current value of at least $10,000. With respect to Class Q Shares, you may elect
to have monthly, quarterly, semi-annual or annual payments in any fixed amount
of $1,000 or more made to yourself or to anyone else you properly designate, as
long as the account has a current value of at least $250,000. For additional
information, contact the Shareholder Servicing Agent at (800) 992-0180, or see
the Fund's Statement of Additional Information.
PAYMENTS. Payment to shareholders for shares redeemed or repurchased
ordinarily will be made within three days after receipt by the Transfer Agent of
a written request in good order. The Fund may delay the mailing of a redemption
check until the check used to purchase the shares being redeemed has cleared
which may take up to 15 days or more. To reduce such delay, all purchases should
be made by bank wire or federal funds. The Fund may suspend the right of
redemption under certain extraordinary circumstances in accordance with the
Rules of the Securities and Exchange Commission. The Fund intends to pay in cash
for all shares redeemed, but under abnormal conditions that make payment in cash
harmful to the Fund, the Fund may make payment wholly or partly in securities at
their then current market value equal to the redemption price. In such case, the
Fund could elect to make payment in securities for redemptions in excess of
$250,000 or 1% of its net assets during any 90-day period for any one
shareholder. An investor may incur brokerage costs in converting such securities
to cash.
MANAGEMENT OF THE FUND
INVESTMENT MANAGER. ING Pilgrim Investments has overall responsibility for
the management of the Fund. The Fund and ING Pilgrim Investments have entered
into an agreement that requires ING Pilgrim Investments to provide or oversee
all investment advisory and portfolio management services for the Fund. ING
Pilgrim Investments provides the Fund with office space, equipment and personnel
necessary to administer the Fund. The agreement with ING Pilgrim Investments can
be canceled by the Board of Trustees of the Fund upon 60 days' written notice.
Organized in December 1994, ING Pilgrim Investments is registered as an
investment adviser with the Securities and Exchange Commission. As of September
30, 2000, ING Pilgrim Investments managed over $20.7 billion in assets. ING
Pilgrim Investments bears its expenses of providing the services described
above. Investment management fees are computed and accrued daily and paid
monthly.
PARENT COMPANY AND DISTRIBUTOR. ING Pilgrim Investments and the
Distributor are indirect, wholly owned subsidiaries of ING Groep, N.V. (NYSE:
ING) ("ING Group"). ING Group is a global financial institution active in the
field of insurance, banking and asset management in more than 65 countries, with
almost 100,000 employees.
SHAREHOLDER SERVICING AGENT. ING Pilgrim Group, Inc. serves as
Shareholder Servicing Agent for the Fund. The Shareholder Servicing Agent is
responsible for responding to written and telephonic inquiries from
shareholders. The Fund pays the Shareholder Servicing Agent a monthly fee on a
per-contact basis, based upon incoming and outgoing telephonic and written
correspondence.
PORTFOLIO TRANSACTIONS. ING Pilgrim Investments will place orders to
execute securities transactions that are designed to implement the Fund's
investment objectives and policies. ING Pilgrim Investments will use its
reasonable efforts to place all purchase and sale transactions with brokers,
dealers and banks ("brokers") that provide "best execution" of these orders. In
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<PAGE>
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 monthly and
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, C, or Q account in the Fund invested into a Pilgrim Fund or ING
Fund, which offers Class A, B, C, or Q shares.
FEDERAL TAXES. The following information is meant as a general summary
for U.S. shareholders. Please see the Fund's Statement of Additional Information
for additional information. You should rely your own tax adviser for advice
about the particular federal, state and local tax consequences to you of
investing in the Fund.
The Fund will distribute most of its net investment income and net capital
gains to its shareholders each year. Although the Fund will not be taxed on
amounts it distributes, most shareholders will be taxed on amounts they receive.
A particular distribution generally will be taxable as either ordinary income or
long-term capital gains. It does not matter how long you have held your Fund
shares or whether you elect to receive your distributions in cash or reinvest
them in additional Fund shares. For example, if the Fund designates a particular
distribution as a long-term capital gains distribution, it will be taxable to
you at your long-term capital gains rate.
Dividends declared by the Fund in October, November or December and paid
during the following January may be treated as having been received by
shareholders in the year the distributions were declared.
You will receive an annual statement summarizing your dividend and capital
gains distributions.
If you invest through a tax-deferred account, such as a retirement plan,
you generally will not have to pay tax on dividends until they are distributed
from the account. These accounts are subject to complex tax rules, and you
should consult your tax adviser about investment through a tax-deferred account.
There may be tax consequences to you if you sell or redeem Fund shares. You
will generally have a capital gain or loss, which will be long-term or
short-term, generally depending on how long you hold those shares. If you
exchange shares, you may be treated as if you sold them. You are responsible for
any tax liabilities generated by your transactions.
As with all mutual funds, the Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to you if you
fail to provide the Fund with your correct taxpayer identification number or to
make required certifications, or if you have been notified by the IRS that you
are subject to backup withholding. Backup withholding is not an additional tax;
rather, it is a way in which the IRS ensures it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.
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<PAGE>
PILGRIM STRATEGIC INCOME FUND FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
For the year ended June 30, 2000 and the three months ended June 30, 1999, the
information in the table below has been audited by KPMG LLP, independent
auditors. For all periods ending prior to June 30, 1999, the financial
information was audited by other independent auditors.
<TABLE>
<CAPTION>
Class A Class B
------------------------------- -------------------------------
Three Three
Year months July 27, Year months July 27,
Ended ended 1998(1) to Ended ended 1998(1) to
June 30, June 30, March 31, June 30, June 30, March 31,
2000 1999(2) 1999 2000 1999(2) 1999
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 12.59 12.89 13.08 12.33 12.61 12.78
Income from investment operations:
Net investment income $ 0.92 0.26 0.53 0.88 0.18 0.45
Net realized and unrealized
gains (loss) on investments $ (0.52) (0.42) (0.08) (0.53) (0.33) (0.05)
Total from investment operations $ 0.40 (0.16) 0.45 0.35 (0.15) 0.40
Less distributions from:
Net investment income $ 0.92 0.14 0.53 0.88 0.13 0.46
Net realized gains on investments $ -- -- 0.11 -- -- 0.11
Net asset value, end of period $ 12.07 12.59 12.89 11.80 12.33 12.61
Total Return(3): % 3.42 (1.23) 5.60 3.00 (1.20) 5.17
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 2,726 2,736 5,751 4,460 5,658 6,637
Ratios to average net assets:
Net expenses after expense reimbursement(4)(5) % 0.96 0.90 0.96 1.36 1.29 1.37
Gross expenses prior to expense reimbursement(4) % 2.64 1.56 1.98 3.04 1.95 2.42
Net investment income (loss)
after expense reimbursement(4)(5) % 7.69 5.88 5.81 7.29 5.49 5.35
Portfolio turnover % 168 69 274 168 69 274
Class C
---------------------------------
Three
Year months July 27,
Ended ended 1998(1) to
Juned 30, June 30, March 31,
2000 1999(2) 1999
----- ----- -----
Per Share Operating Performance:
Net asset value, beginning of period $ 12.81 13.10 13.27
Income from investment operations:
Net investment income $ 0.87 0.19 0.48
Net realized and unrealized
gains (loss) on investments $ (0.51) (0.35) (0.06)
Total from investment operations $ 0.36 (0.16) 0.42
Less distributions from:
Net investment income $ 0.87 0.13 0.48
Net realized gains on investments $ -- -- 0.11
Net asset value, end of period $ 12.30 12.81 13.10
Total Return(3) % 3.02 (1.21) 5.19
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 3,966 7,965 8,128
Ratios to average net assets:
Net expenses after expense reimbursement(4)(5) % 1.36 1.29 1.36
Gross expenses prior to expense reimbursement(4) % 3.04 1.95 2.41
Net investment income (loss)
after expense reimbursement(4)(5) % 7.29 5.49 5.36
Portfolio turnover % 168 69 274
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Class Q
---------------------------------------
Year Three months July 27
ended ended 1998(1) to
June 30, June 30, March 31,
2000 1999(2) 1999
---- ------- ----
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 11.99 12.26 12.43
Income from investment operations:
Net investment income $ 0.94 0.25 0.48
Net realized and unrealized (loss) on investments $ (0.54) (0.38) (0.04)
Total from investment operations $ 0.40 (0.13) 0.44
Less distributions from:
Net investment income $ 0.94 0.14 0.50
Net realized gains on investments $ -- -- 0.11
Net asset value, end of period $ 11.45 11.99 12.26
Total Return(3): % 3.55 1.16 5.78
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 228 171 314
Ratios to average net assets:
Net expenses after expense reimbursement(4)(5) % 0.86 0.71 0.69
Gross expenses prior to expense reimbursement(4) % 2.54 1.37 1.74
Net investment income (loss) after expense
reimbursement(4)(5) % 7.79 6.07 6.03
Portfolio turnover % 168 69 274
</TABLE>
(1) The Fund commenced operations on July 27, 1998.
(2) Effective May 24, 1999, ING Pilgrim Investments, Inc., became the
Investment Manager of the Fund and the Fund changed its year end to June
30.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized for periods less than one year.
(5) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
C-10
<PAGE>
APPENDIX D
The following is a list of the current funds in the Pilgrim Funds and ING
Funds, which are managed by an affiliate of ING Pilgrim Investments, and the
classes of shares that are currently offered by each fund or are expected to be
offered at or shortly after the Reorganization:
FUND CLASSES OFFERED
---- ---------------
ING FUNDS
U.S. EQUITY
Internet Fund A, B and C
Tax Efficient Equity Fund A, B and C
GLOBAL/INTERNATIONAL EQUITY
European Equity Fund A, B and C
Global Communications Fund A, B and C
Global Information Technology Fund A, B and C
FIXED INCOME
High Yield Bond Fund A, B and C
Intermediate Bond Fund A, B and C
Money Market Fund A, B, C and I
National Tax-Exempt Bond Fund A, B and C
PILGRIM FUNDS
U.S. EQUITY
Balanced Fund A, B, C, Q and T
Bank and Thrift Fund A and B
Convertible Fund A, B, C and Q
Corporate Leaders Trust Fund A
Growth and Income Fund A, B, C and Q
Growth + Value Fund A, B, C and Q
Growth Opportunities Fund A, B, C, Q, I and T
LargeCap Growth Fund A, B, C and Q
MagnaCap Fund A, B, C, Q and M
MidCap Growth Fund A, B, C and Q
MidCap Opportunities Fund A, B, C, Q and I
Research Enhanced Index Fund A, B, C, Q and I
SmallCap Growth Fund A, B, C, Q
SmallCap Opportunities Fund A, B, C, Q, I and T
GLOBAL/INTERNATIONAL EQUITY
Asia-Pacific Equity Fund A, B and M
Emerging Countries Fund A, B, C and Q
Gold Fund (to be renamed Precious Metals Fund) A
International Fund A, B, C and Q
International Core Growth Fund A, B, C and Q
International SmallCap Growth Fund A, B, C and Q
International Value Fund A, B, C and Q
Troika Dialog Russia Fund A
Worldwide Growth Fund A, B, C and Q
FIXED INCOME
GNMA Income Fund A, B, C, Q, M and T
High Yield Fund A, B, C, Q and M
High Yield Fund II A, B, C, Q and T
Lexington Money Market Trust A
Pilgrim Money Market Fund A, B and C
Strategic Income Fund A, B, C and Q
D-1
<PAGE>
APPENDIX E
As of November 1, 2000, the following persons owned beneficially or of
record 5% or more of the outstanding shares of the specified Class of Pilgrim
Strategic Income Fund:
<TABLE>
<CAPTION>
% OF CLASS % OF FUND % OF FUND
BEFORE BEFORE AFTER
NAME AND ADDRESS CLASS REORGANIZATION REORGANIZATION REORGANIZATION
---------------- ----- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Eastern Bank & Trust FBO A 13.3% 3.21%
Munksjo Paper 401k
217 Essex Street
Salem, MA 01970
Wachovia Securities Inc. FBO C 6.69% 2.06%
#288-00397-10
PO Box 1220
Charlotte, NC 28201
</TABLE>
As of November 1, 2000, the following persons owned beneficially or of
record 5% or more of the outstanding shares of the specified Class of Pilgrim
Global Income Fund:
<TABLE>
<CAPTION>
% OF CLASS % OF FUND % OF FUND
BEFORE BEFORE AFTER
NAME AND ADDRESS CLASS REORGANIZATION REORGANIZATION REORGANIZATION
---------------- ----- -------------- -------------- --------------
<S> <C> <C> <C> <C>
McDonald's Investments Inc. FBO C 100% 0.02%
#80700149
800 Superior Ave E, Ste 2100
Cleveland, OH 44114
</TABLE>
E-1
<PAGE>
PART B
PILGRIM MUTUAL FUNDS
------------------------------------------------------------------------------
Statement of Additional Information
__________ __, 2000
------------------------------------------------------------------------------
Acquisition of the Assets and By and in Exchange for Shares of
Liabilities of Pilgrim Global Income Fund Pilgrim Strategic Income Fund
7337 E. Doubletree Ranch Road (a series of Pilgrim Mutual Funds)
Scottsdale, Arizona 85258 7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
This Statement of Additional Information is available to the Shareholders of
Pilgrim Global Income Fund ("Global Income Fund") in connection with a proposed
transaction whereby all of the assets and liabilities of Global Income Fund will
be transferred to Pilgrim Strategic Income Fund ("Strategic Income Fund"), a
series of Pilgrim Mutual Funds, in exchange for shares of Strategic Income Fund.
This Statement of Additional Information of Pilgrim Mutual Funds consists of
this cover page, the PRO FORMA Financial Statements, and the following
documents, each of which was filed electronically with the Securities and
Exchange Commission and is incorporated by reference herein:
1. The Statement of Additional Information for Strategic Income Fund dated
November 1, 2000, as filed on November 1, 2000.
2. The Statement of Additional Information for Global Income Fund dated July
31, 2000, as filed on July 26, 2000.
3. The Financial Statements of Strategic Income Fund are included in the
Annual Report of Pilgrim Mutual Funds dated June 30, 2000, as filed on
September 7, 2000.
4. The Financial Statements of Global Income Fund are included in the Annual
Report dated December 31, 1999, as filed on February 28, 2000.
5. The Financial Statements of Global Income Fund are included in the
Semi-Annual Report dated June 30, 2000, as filed on August 31, 2000.
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated ________ ___, 2000 relating to the Reorganization of
Global Income Fund may be obtained, without charge, by writing to ING Pilgrim
Investments, Inc. 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 Proxy Statement/Prospectus.
1
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
Shown below are financial statements for each Fund and pro forma financial
statements for the combined Fund, assuming the reorganization is consummated, as
of June 30, 2000. The first table presents Statements of Assets and Liabilities
(unaudited) for each Fund and pro forma figures for the combined Fund. The
second table presents Statements of Operations (unaudited) for each Fund and pro
forma figures for the combined Fund. The third table presents Portfolio of
Investments 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>
STRATEGIC GLOBAL PRO FORMA PRO FORMA
INCOME INCOME ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities at market value* $10,907,360 $28,590,043 $39,497,403
Short-term investments at amortized cost 289,000 1,023,830 1,312,830
Cash 15,968 -- 15,968
Receivables:
Fund shares sold 86,185 97,628 183,813
Dividends and interest 158,632 761,468 920,100
Due from affiliate 13,244 -- 13,244
Investment securities sold 202,924 -- 202,924
Prepaid expenses 21,534 -- 21,534
----------- ----------- ---------- -----------
Total Assets 11,694,847 30,472,969 42,167,816
----------- ----------- ---------- -----------
LIABILITIES:
Payable for investment securities purchased 250,000 72,524 322,524
Payable for fund shares redeemed 15,577 29,761 45,338
Payable to affiliate -- 24,528 24,528
Other accrued expenses and liabilities 49,086 172,330 221,416
----------- ----------- ---------- -----------
Total Liabilities 314,663 299,143 613,806
----------- ----------- ---------- -----------
NET ASSETS $11,380,184 $30,173,826 $41,554,010
=========== =========== ========== ===========
NET ASSETS CONSIST OF:
Paid-in capital $12,441,162 $35,218,328 $47,659,490
Undistributed net investment income 491,239 528,312 1,019,551
Accumulated net realized (loss) on investments
and foreign currency transactions (1,342,971) (822,766) (2,165,737)
Net unrealized (depreciation) of investments
and other assets, liabilities and forward
contracts denominated in foreign currencies (209,246) (4,750,048) (4,959,294)
----------- ----------- ---------- -----------
Net Assets $11,380,184 $30,173,826 $41,554,010
=========== =========== ========== ===========
CLASS A:
Net Assets $ 2,726,254 $30,173,826 $32,900,080
Shares outstanding 225,777 3,240,512 (740,516)(A) 2,725,773
Net asset value and redemption price per share $ 12.07 $ 9.31 $ 12.07
Maximum offering price per share $ 12.67 $ 9.88 $ 12.67
CLASS B:
Net Assets $ 4,460,163 N/A $ 4,460,163
Shares outstanding 377,987 N/A 377,987
Net asset value and redemption price per share $ 11.80 N/A $ 11.80
Maximum offering price per share $ 11.80 N/A $ 11.80
CLASS C:
Net Assets $ 3,966,076 N/A $ 3,966,076
Shares outstanding 322,466 N/A 322,466
Net asset value and redemption price per share $ 12.30 N/A $ 12.30
Maximum offering price per share $ 12.30 N/A $ 12.30
CLASS Q:
Net Assets $ 227,691 N/A $ 227,691
Shares outstanding 19,891 N/A 19,891
Net asset value and redemption price per share $ 11.45 N/A $ 11.45
Maximum offering price per share $ 11.45 N/A $ 11.45
*Cost of securities $11,116,606 $33,393,767 $44,510,373
</TABLE>
----------
(A) Reflects new shares issued, net of retired shares of the Fund.
See Accompanying Notes to Unaudited Proforma Financial Statements
2
<PAGE>
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
STRATEGIC GLOBAL PRO FORMA PRO FORMA
INCOME INCOME ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 2000 2000 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 65,811 $ -- $ 65,811
Interest 1,073,053 3,673,349 4,746,402
----------- ----------- ----------- -----------
Total investment income 1,138,864 3,673,349 -- 4,812,213
----------- ----------- ----------- -----------
EXPENSES:
Investment management fees 59,874 314,847 (173,336) (A) 201,385
Distribution expenses
Class A 10,355 24,908 85,155 (A) 120,418
Class B 37,680 -- 37,680
Class C 38,579 -- 38,579
Class Q 444 -- 444
Transfer agent fees 110,300 37,754 148,054
Shareholder reporting 6,894 26,062 32,956
Registration and filing fees 76,124 16,955 (8,478) (B) 84,601
Recordkeeping and pricing fees 10,474 -- 24,754 35,228
Professional fees 4,341 42,165 (3,473) (B) 43,033
Custodian fees 6,768 39,316 46,084
Shareholder servicing fees 4,683 -- 4,683
Directors' fees 961 76,715 (70,000) (B) 7,676
Insurance 247 -- 247
Miscellaneous 7,570 18,929 26,499
Interest and credit facility fee 1,218 -- 1,218
Accounting expenses -- 25,558 (25,558) (C) --
Computer processing fees -- 10,433 (10,433) (C) --
----------- ----------- ---------- -----------
Total expenses 376,512 633,642 (181,369) 828,785
----------- ----------- ---------- -----------
Less:
Waived and reimbursed fees 208,068 -- 150,608 (C) 358,676
Earnings credits 174 -- (174) (C) --
----------- ----------- ---------- -----------
Net expenses 168,270 633,642 (331,803) 470,109
----------- ----------- ---------- -----------
Net investment income 970,594 3,039,707 331,803 4,342,104
----------- ----------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized (loss) from:
Investments (763,126) (75,484) (838,610)
Foreign currency transactions (1,151) (1,416,362) (1,417,513)
Net change in unrealized appreciation (depreciation) of:
Investments 132,524 (1,418,994) (1,286,470)
Translation of other assets, liabilities and forward
contracts denominated in foreign currencies 897 -- 897
----------- ----------- ----------- -----------
Net gain from investments and foreign currencies (630,856) (2,910,840) -- (3,541,696)
----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 339,738 $ 128,867 $ 331,803 $ 800,408
=========== =========== =========== ===========
</TABLE>
----------
(A) Reflects adjustment in expenses due to effects of current investment
advisory, administative and 12b-1 contract rate.
(B) Reflects adjustment in expenses due to elimination of duplicative services.
(C) Reflects adjustment to concur with Pilgrim expense structure.
See Accompanying Notes to Unaudited Proforma Financial Statements
3
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
As of June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Strategic Global
Income Income Pro Forma
Shares Shares Shares
------ ------ ------
<S> <C> <C> <C>
CORPORATE BONDS: 39.98%
BANKS: 0.83%
200,000 200,000 Wachovia Corp., 6.605%, due 10/01/25
155,000 155,000 @@ Banco Santander-Chile, 6.500%, due 11/01/05
BROADCASTING, RADIO & TELEVISION: 2.45%
220,000 220,000 + CD Radio, Inc., 0/15.000% due 12/01/2007
1,000,000 1,000,000 Compagnie De Radiocomunicaciones Moviles SA, 9.25%, due 05/08/08
CABLE AND DBS: 1.37%
1,000,000 1,000,000 + Charter Communications Holdings, 0/11.750%, due 01/15/10
COMMUNICATIONS - INTERNET: 1.16%
250,000 250,000 Exodus Communications, 11.625%, due 7/15/10
250,000 250,000 # Psinet Inc., 11.000%, due 8/01/09
COMMUNICATIONS - WIRELESS: 1.12%
375,000 375,000 + Crown Castle Int'l Corp. 0/11.250%, due 8/01/11
500,000 500,000 + Winstar Communications Inc., 0/14.750%, due 04/15/10
COMMUNICATIONS - WIRELINE: 3.67%
500,000 500,000 + Pinnacle Holdings, Inc., 0/10.000%, due 03/15/08
500,000 500,000 + ICG Services, Inc., 0/10.000%, due 02/15/2008
250,000 250,000 # Globenet Communications Group, Ltd., 13.000%, due 07/15/07
500,000 500,000 Rogers Communications, Inc., 10.50%, due 02/14/06
450,000 450,000 #+ United Pan-Europe Communications, 0/12.500%, due 08/01/09
100,000 100,000 Global Telesystems Group, Inc., 9.875%, due 02/15/05
FINANCIAL - OTHER SERVICES: 0.12%
60,000 60,000 # Cerro Negro Finance, Ltd., 7.330%, due 12/01/09
MORTGAGE: 7.90%
549,749 549,749 @ ABN-AMRO Mortgage Corporation,Series 1998-1, Class B4,6.7079%, due 04/25/28
551,973 551,973 @ BA Mortgage Securities, Inc., Series 1997-2, Class B4, 7.25%, due 10/25/27
171,081 171,081 @ # DLJ Mortgage Acceptance Corporation, Series 1996-I, Class B4, 7.25%, due 9/25/11
430,521 430,521 @ # PNC Mortgage Securities Corporation, Series 1999-1, Class 2B4, 6.25%, due 02/25/14
143,506 143,506 @ # PNC Mortgage Securities Corporation, Series 1999-1, Class 2B5, 6.25%, due 02/25/14
143,505 143,505 @ # PNC Mortgage Securities Corporation, Series 1999-1, Class 2B6, 6.25%, due 02/25/14
681,575 681,575 @ # PNC Mortgage Securities Corporation, Series 1997-5, Class B5, 7.25%, due 10/25/27
682,793 682,793 @ # PNC Mortgage Securities Corporation, Series 1998-2, Class VB5, 6.625%, due 03/25/28
258,322 258,322 @ # PNC Mortgage Securities Corporation, Series 1998-2, Class 4B6, 6.75%, due 12/25/27
489,294 489,294 @ # PNC Mortgage Securities Corporation, Series 2000-4, Class CB4, 6.811%, due 06/25/30
611,618 611,618 @ # PNC Mortgage Securities Corporation, Series 2000-4, Class CB5, 6.811%, due 06/25/30
611,617 611,617 @ # PNC Mortgage Securities Corporation, Series 2000-4, Class CB6, 6.811%, due 06/25/30
1,473,603 1,473,603 @ # PNC Mortgage Securities Corporation, Series 1998-11, Class 1B6, 6.50%, due 11/25/28
278,840 278,840 @ # Residential Asset Securitization Trust, Series 1997-A6, Class B4, 7.25%, due 9/25/12
RETAIL - DISCOUNT: 0.71%
300,000 300,000 Wal-Mart Stores, 6.875%, due 08/10/09
SEMICONDUCTOR/ELECTRONIC COMPONENTS: 0.46%
200,000 200,000 Motorola, Inc., 6.500%, due 09/01/25
TELECOM SERVICES: 0.43%
200,000 200,000 Lucent Technologies, 6.450%, due 03/15/29
Strategic Global
Income Income Pro Forma
Value Value Value
---------- ---------- ----------
CORPORATE BONDS: 39.98%
BANKS: 0.83%
Wachovia Corp., 6.605%, due 10/01/25 195,400 195,400
Banco Santander-Chile, 6.500%, due 11/01/05 148,105 148,105
---------- ---------- ----------
343,505 -- 343,505
---------- ---------- ----------
BROADCASTING, RADIO & TELEVISION: 2.45%
CD Radio, Inc., 0/15.000% due 12/01/2007 126,500 126,500
Compagnie De Radiocomunicaciones Moviles SA, 9.25%, due 05/08/08 891,710 891,710
---------- ---------- ----------
126,500 891,710 1,018,210
---------- ---------- ----------
CABLE AND DBS: 1.37%
Charter Communications Holdings, 0/11.750%, due 01/15/10 568,750 568,750
---------- ---------- ----------
COMMUNICATIONS - INTERNET: 1.16%
Exodus Communications, 11.625%, due 7/15/10 250,625 250,625
Psinet Inc., 11.000%, due 8/01/09 231,250 231,250
---------- ---------- ----------
481,875 -- 481,875
---------- ---------- ----------
COMMUNICATIONS - WIRELESS: 1.12%
Crown Castle Int'l Corp. 0/11.250%, due 8/01/11 234,375 234,375
Winstar Communications Inc., 0/14.750%, due 04/15/10 232,500 232,500
---------- ---------- ----------
466,875 -- 466,875
---------- ---------- ----------
COMMUNICATIONS - WIRELINE: 3.67%
Pinnacle Holdings, Inc., 0/10.000%, due 03/15/08 345,000 345,000
ICG Services, Inc., 0/10.000%, due 02/15/2008 260,000 260,000
Globenet Communications Group, Ltd., 13.000%, due 07/15/07 252,188 252,188
Rogers Communications, Inc., 10.50%, due 02/14/06 371,203 371,203
United Pan-Europe Communications, 0/12.500%, due 08/01/09 226,125 226,125
Global Telesystems Group, Inc., 9.875%, due 02/15/05 71,000 71,000
---------- ---------- ----------
1,154,313 371,203 1,525,516
---------- ---------- ----------
FINANCIAL - OTHER SERVICES: 0.12%
Cerro Negro Finance, Ltd., 7.330%, due 12/01/09 51,937 51,937
---------- ---------- ----------
MORTGAGE: 7.90%
ABN-AMRO Mortgage Corporation,Series 1998-1, Class B4,6.7079%, due 04/25/28 297,123 297,123
BA Mortgage Securities, Inc., Series 1997-2, Class B4, 7.25%, due 10/25/27 319,715 319,715
DLJ Mortgage Acceptance Corporation, Series 1996-I, Class B4, 7.25%, due 9/25/11 126,280 126,280
PNC Mortgage Securities Corporation, Series 1999-1, Class 2B4, 6.25%, due 02/25/14 311,590 311,590
PNC Mortgage Securities Corporation, Series 1999-1, Class 2B5, 6.25%, due 02/25/14 89,422 89,422
PNC Mortgage Securities Corporation, Series 1999-1, Class 2B6, 6.25%, due 02/25/14 28,701 28,701
PNC Mortgage Securities Corporation, Series 1997-5, Class B5, 7.25%, due 10/25/27 399,360 399,360
PNC Mortgage Securities Corporation, Series 1998-2, Class VB5, 6.625%, due 03/25/28 335,742 335,742
PNC Mortgage Securities Corporation, Series 1998-2, Class 4B6, 6.75%, due 12/25/27 72,330 72,330
PNC Mortgage Securities Corporation, Series 2000-4, Class CB4, 6.811%, due 06/25/30 359,325 359,325
PNC Mortgage Securities Corporation, Series 2000-4, Class CB5, 6.811%, due 06/25/30 339,544 339,544
PNC Mortgage Securities Corporation, Series 2000-4, Class CB6, 6.811%, due 06/25/30 125,381 125,381
PNC Mortgage Securities Corporation, Series 1998-11, Class 1B6, 6.50%, due 11/25/28 265,249 265,249
Residential Asset Securitization Trust, Series 1997-A6, Class B4, 7.25%, due 9/25/12 214,315 214,315
---------- ---------- ----------
-- 3,284,077 3,284,077
---------- ---------- ----------
RETAIL - DISCOUNT: 0.71%
Wal-Mart Stores, 6.875%, due 08/10/09 293,358 293,358
---------- ---------- ----------
SEMICONDUCTOR/ELECTRONIC COMPONENTS: 0.46%
Motorola, Inc., 6.500%, due 09/01/25 192,849 192,849
---------- ---------- ----------
TELECOM SERVICES: 0.43%
Lucent Technologies, 6.450%, due 03/15/29 176,642 176,642
---------- ---------- ----------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Strategic Global
Income Income Pro Forma
Shares Shares Shares
------ ------ ------
<S> <C> <C> <C>
TRANSPORTATION (AIR, BUS, RAIL): 3.78%
250,000 250,000 Atlas Air, Inc., 9.250%, due 04/15/08
300,000 300,000 Archibald Candy Corporation, 10.25%, due 07/01/04
1,000,000 1,000,000 Beazer Homes USA, Inc., 9.00%, due 03/01/04
950,000 950,000 Clark Materials Handling Company, Senior Note, Series D, 10.75%, due 11/15/06
UTILITIES: 15.98%
100,000 100,000 # East Coast Power LLC, 7.536%, due 06/30/17
20,000 20,000 Enersis S.A., 6.600%, due 12/01/26
3,389,000* 3,389,000* Danske Kredit, 6.00%, due 10/01/29
4,724,000* 4,724,000* Nykredit A/S, 6.00%, due 10/01/29
4,605,000* 4,605,000* Realkredit Danmark A/S, 6.00%, due 10/01/29
9,805,000* 9,805,000* Unikredit Realkredit, 6.00%, due 10/01/29
1,500,000 1,500,000 Tricom, S.A., 11.375%, due 09/01/04
1,000,000 1,000,000 Cemex SA, 12.75%, due 07/15/06
910,509 910,509 @ # Norwest Asset Securities Corp., Series 1996-I, Class B4, 7.50%, due 5/25/27
1,000,000 1,000,000 Chiquita Brands International, Inc., 10.25%, due 11/01/06
TOTAL CORPORATE BONDS (COST $4,405,371, $15,068,990, $19,474,361)
U.S. TREASURY OBLIGATION: 6.64%
900,000 900,000 U.S. Treasury Bond, 6.000%, due 08/15/04
400,000 400,000 U.S. Treasury Bond, 6.000%, due 08/15/09
800,000 800,000 U.S. Treasury Note, 6.125%, due 08/15/29
600,000 600,000 U.S. Treasury Note, 7.250%, due 05/15/16
TOTAL U.S. TREASURY OBLIGATIONS (COST $2,728,924)
U.S. GOVERNMENT AGENCY OBLIGATIONS: 5.34%
FEDERAL HOME LOAN MORTGAGE CORPORATION: 1.91%
184,617 184,617 5.500%, due 1/1/14
95,821 95,821 5.500%, due 2/1/14
471,883 471,883 7.000%, due 6/1/29
15,614 15,614 9.000%, due 6/1/06
40,848 40,848 9.500%, due 11/1/05
16,417 16,417 10.000%, due 10/1/03
FEDERAL NATIONAL MORTGAGE ASSOCIATION: 3.41%
87,931 87,931 6.500%, due 2/1/09
750,000 750,000 7.125%, due 2/15/05
500,000 500,000 7.250%, due 1/15/10
20,974 20,974 9.500%, due 5/1/07
18,460 18,460 9.500%, due 6/1/05
18,018 18,018 9.500%, due 7/1/06
18,399 18,399 10.000%, due 10/1/05
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION: 0.01%
3,606 3,606 8.500%, due 2/15/21
678 678 11.500%, due 7/15/13
422 422 11.500%, due 2/15/13
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $2,244,844)
FOREIGN GOVERNMENT AGENCY OBLIGATIONS: 38.94%
1,200,000 1,200,000 Republic of Argentina, 9.75%, due 09/19/27
2,426,820 2,426,820 Federative Republic of Brazil, "C" Bond, 8.00%, due 04/15/14
1,200,000 1,200,000 Central Bank of Dominican Republic, Floating Rate Note, 7.9375%, due 08/30/24
2,000,000 2,000,000 Republic of Ecuador, Floating Rate Note, 4.00%, due 02/28/25
310,000,000* 310,000,000* Hellenic Republic, Floating Rate Note, 10.24%, due 10/23/03
200,000,000* 200,000,000* Hellenic Republic, 8.80%, due 06/19/07
300,000,000* 300,000,000* Government of Hungary, 12.50%, due 09/24/02
200,000,000* 200,000,000* Government of Hungary, 16.00%, due 11/24/00
400,000 400,000 Republic of Jordan, Floating Rate Note, 6.00%, due 12/23/23
1,000,000 1,000,000 United Mexican States, 6.25%, due 12/31/19,
1,000,000 1,000,000 United Mexican States (Rights)
10,000,000 10,000,000 Norwegian Government Bond, 5.50%, due 05/15/09
50,000,000* 50,000,000* Republic of the Philippines, 18.00%, due 11/26/08
4,500,000* 4,500,000* Government of Poland, 12.00%, due 06/12/01
4,000,000* 4,000,000* Government of Poland, 12.00%, due 02/12/03
5,000,000* 5,000,000* Poland Treasury Bill, due 05/16/01
5,100,000* 5,100,000* Electricity Supply Commission (ESKOM), 11.00%, due 06/01/08
2,000,000* 2,000,000* Republic of South Africa, 12.00%, due 02/28/05
10,000,000* 10,000,000* Government of Sweden, 6.00%, due 02/09/05
TOTAL FOREGIN GOVERNMENT AGENCY OBLIGATONS (COST: $18,325,141)
Strategic Global
Income Income Pro Forma
Value Value Value
---------- ---------- ----------
TRANSPORTATION (AIR, BUS, RAIL): 3.78%
Atlas Air, Inc., 9.250%, due 04/15/08 238,750 238,750
Archibald Candy Corporation, 10.25%, due 07/01/04 219,000 219,000
Beazer Homes USA, Inc., 9.00%, due 03/01/04 952,500 952,500
Clark Materials Handling Company, Senior Note, Series D, 10.75%, due 11/15/06 161,500 161,500
---------- ---------- ----------
238,750 1,333,000 1,571,750
---------- ---------- ----------
UTILITIES: 15.98% --
East Coast Power LLC, 7.536%, due 06/30/17 89,500 89,500
Enersis S.A., 6.600%, due 12/01/26 19,020 19,020
Danske Kredit, 6.00%, due 10/01/29 398,686 398,686
Nykredit A/S, 6.00%, due 10/01/29 556,039 556,039
Realkredit Danmark A/S, 6.00%, due 10/01/29 542,033 542,033
Unikredit Realkredit, 6.00%, due 10/01/29 1,154,099 1,154,099
Tricom, S.A., 11.375%, due 09/01/04 1,406,250 1,406,250
Cemex SA, 12.75%, due 07/15/06 1,121,662 1,121,662
Norwest Asset Securities Corp., Series 1996-I, Class B4, 7.50%, due 5/25/27 552,133 552,133
Chiquita Brands International, Inc., 10.25%, due 11/01/06 800,000 800,000
---------- ---------- ----------
108,520 6,530,902 6,639,422
---------- ---------- ----------
TOTAL CORPORATE BONDS (COST $4,405,371, $15,068,990, $19,474,361) 4,203,874 12,410,892 16,614,766
---------- ---------- ----------
U.S. TREASURY OBLIGATION: 6.64%
U.S. Treasury Bond, 6.000%, due 08/15/04 891,558 891,558
U.S. Treasury Bond, 6.000%, due 08/15/09 396,812 396,812
U.S. Treasury Note, 6.125%, due 08/15/29 808,000 808,000
U.S. Treasury Note, 7.250%, due 05/15/16 661,314 661,314
---------- ---------- ----------
TOTAL U.S. TREASURY OBLIGATIONS (COST $2,728,924) 2,757,684 -- 2,757,684
---------- ---------- ----------
U.S. GOVERNMENT AGENCY OBLIGATIONS: 5.34%
FEDERAL HOME LOAN MORTGAGE CORPORATION: 1.91%
5.500%, due 1/1/14 171,635 171,635
5.500%, due 2/1/14 89,083 89,083
7.000%, due 6/1/29 456,986 456,986
9.000%, due 6/1/06 16,234 16,234
9.500%, due 11/1/05 42,750 42,750
10.000%, due 10/1/03 17,212 17,212
---------- ---------- ----------
793,900 -- 793,900
---------- ---------- ----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION: 3.41%
6.500%, due 2/1/09 85,183 85,183
7.125%, due 2/15/05 750,375 750,375
7.250%, due 1/15/10 503,200 503,200
9.500%, due 5/1/07 21,950 21,950
9.500%, due 6/1/05 19,320 19,320
9.500%, due 7/1/06 18,857 18,857
10.000%, due 10/1/05 19,870 19,870
---------- ---------- ----------
1,418,755 -- 1,418,755
---------- ---------- ----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION: 0.01%
8.500%, due 2/15/21 3,729 3,729
11.500%, due 7/15/13 752 752
11.500%, due 2/15/13 438 438
---------- ---------- ----------
4,919 -- 4,919
---------- ---------- ----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $2,244,844) 2,217,574 -- 2,217,574
---------- ---------- ----------
FOREIGN GOVERNMENT AGENCY OBLIGATIONS: 38.94%
Republic of Argentina, 9.75%, due 09/19/27 944,989 944,989
Federative Republic of Brazil, "C" Bond, 8.00%, due 04/15/14 1,811,713 1,811,713
Central Bank of Dominican Republic, Floating Rate Note, 7.9375%, due 08/30/24 792,000 792,000
Republic of Ecuador, Floating Rate Note, 4.00%, due 02/28/25 681,250 681,250
Hellenic Republic, Floating Rate Note, 10.24%, due 10/23/03 917,425 917,425
Hellenic Republic, 8.80%, due 06/19/07 653,779 653,779
Government of Hungary, 12.50%, due 09/24/02 1,165,265 1,165,265
Government of Hungary, 16.00%, due 11/24/00 757,899 757,899
Republic of Jordan, Floating Rate Note, 6.00%, due 12/23/23 244,021 244,021
United Mexican States, 6.25%, due 12/31/19, 831,250 831,250
United Mexican States (Rights) -- --
Norwegian Government Bond, 5.50%, due 05/15/09 1,116,707 1,116,707
Republic of the Philippines, 18.00%, due 11/26/08 1,382,534 1,382,534
Government of Poland, 12.00%, due 06/12/01 980,809 980,809
Government of Poland, 12.00%, due 02/12/03 826,015 826,015
Poland Treasury Bill, due 05/16/01 994,655 994,655
Electricity Supply Commission (ESKOM), 11.00%, due 06/01/08 628,060 628,060
Republic of South Africa, 12.00%, due 02/28/05 278,778 278,778
Government of Sweden, 6.00%, due 02/09/05 1,172,002 1,172,002
---------- ---------- ----------
TOTAL FOREGIN GOVERNMENT AGENCY OBLIGATONS (COST: $18,325,141) -- 16,179,151 16,179,151
---------- ---------- ----------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Strategic Global
Income Income Pro Forma
Shares Shares Shares
------ ------ ------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET-BACKED SECURITIES: 2.10%
MORTGAGE -- COMMERCIAL: 1.16%
288,304 288,304 GMCC 1999 C-3 A1A 6.974%, due 5/15/08
210,000 210,000 Allied Capital Commercial Mortgage, 1998 1 C, 6.710%, due 12/25/04
300,000 300,000 MORTGAGE -- RESIDENTIAL: 0.94%
100,000 100,000 Emergent Home Equity Loan Trust 7.080%, due 12/15/28
Saxon Asset Securities Trust 1999 1 AF3, 6.170%, due 08/25/21
TOTAL CMO'S AND ASSET BACKED SECURITIES (COST $885,971)
PREFERRED STOCK: 0.68%
COMMUNICATIONS -- INTERNET: 0.68%
2,853 2,853 @ Nextlink Communications 13.500%, due 06/01/10
TOTAL PREFERRED STOCK (COST $240,842)
MUTUAL FUNDS: 1.38%
INVESTMENT COMPANIES: 1.38%
64,500 64,500 Pilgrim Prime Rate Trust
TOTAL MUTUAL FUNDS (COST $610,654)
TOTAL LONG-TERM INVESTMENTS: (COST $11,116,606, $33,394,131, $44,510,737)
SHORT-TERM INVESTMENTS: 3.16%
REPURCHASE AGREEMENTS: 0.70%
289,000 289,000 State Street Repurchase Agreement, 6.200%, due 07/03/00 (Collateralized by
$205,000 U.S. Treasury Notes, 12.500% Due 08/15/14, Market Vallue $300,325)
UNITED STATES: 2.46%
750,000 750,000 U.S. Treasury Bills,5.92%, due 12/21/00
300,000 300,000 U.S. Treasury Bills,5.74%, due 10/19/00
TOTAL SHORT-TERM INVESTMENTS (COST $289,000, $1,023,466, 1,312,466)
TOTAL INVESTMENTS IN SECURITIES (COST $11,405,606, 34,417,597, $45,823,203)
OTHER ASSETS AND LIABILITIES-NET
NET ASSETS
Strategic Global
Income Income Pro Forma
Value Value Value
---------- ---------- ----------
COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET-BACKED SECURITIES: 2.10%
MORTGAGE -- COMMERCIAL: 1.16%
GMCC 1999 C-3 A1A 6.974%, due 5/15/08 283,790 283,790
Allied Capital Commercial Mortgage, 1998 1 C, 6.710%, due 12/25/04 199,974 199,974
---------- ---------- ----------
483,764 -- 483,764
---------- ---------- ----------
MORTGAGE -- RESIDENTIAL: 0.94%
Emergent Home Equity Loan Trust 7.080%, due 12/15/28 292,477 292,477
Saxon Asset Securities Trust 1999 1 AF3, 6.170%, due 08/25/21 97,399 97,399
---------- ---------- ----------
389,876 -- 389,876
---------- ---------- ----------
TOTAL CMO'S AND ASSET BACKED SECURITIES (COST $885,971) 873,640 -- 873,640
---------- ---------- ----------
PREFERRED STOCK: 0.68%
COMMUNICATIONS -- INTERNET: 0.68%
Nextlink Communications 13.500%, due 06/01/10 282,150 282,150
---------- ---------- ----------
TOTAL PREFERRED STOCK (COST $240,842) 282,150 -- 282,150
---------- ---------- ----------
MUTUAL FUNDS: 1.38%
INVESTMENT COMPANIES: 1.38%
Pilgrim Prime Rate Trust 572,438 572,438
---------- ---------- ----------
TOTAL MUTUAL FUNDS (COST $610,654) 572,438 -- 572,438
---------- ---------- ----------
TOTAL LONG-TERM INVESTMENTS: (COST $11,116,606, $33,394,131, $44,510,737) 10,907,360 28,590,043 39,497,403
---------- ---------- ----------
SHORT-TERM INVESTMENTS: 3.16%
REPURCHASE AGREEMENTS: 0.70%
State Street Repurchase Agreement, 6.200%, due 07/03/00 (Collateralized by
$205,000 U.S. Treasury Notes, 12.500% Due 08/15/14, Market Vallue $300,325) 289,000 289,000
---------- ---------- ----------
UNITED STATES: 2.46%
U.S. Treasury Bills,5.92%, due 12/21/00 728,978 728,978
U.S. Treasury Bills,5.74%, due 10/19/00 294,852 294,852
---------- ---------- ----------
-- 1,023,830 1,023,830
---------- ---------- ----------
TOTAL SHORT-TERM INVESTMENTS (COST $289,000, $1,023,466, 1,312,466) 289,000 1,023,830 1,312,830
---------- ---------- ----------
TOTAL INVESTMENTS IN SECURITIES (COST $11,405,606, 34,417,597, $45,823,203) 98.21% 11,196,360 29,613,873 40,810,233
OTHER ASSETS AND LIABILITIES-NET 1.79% 183,824 559,953 743,777
------- ---------- ---------- ----------
NET ASSETS 100.00% 11,380,184 30,173,826 41,554,010
======= ========== ========== ==========
</TABLE>
----------
@ Restricted 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
++ Related party.
# 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.
+ Step-up basis bonds. Interest rates shown reflect current and future coupon
rates.
* Principal amount represents local currency.
6
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF COMBINATION:
On November 2, 2000, the Boards of Pilgrim Strategic Income Fund
("Strategic Income Fund") and Pilgrim Global Income Fund ("Global Income Fund"),
approved an Agreement and Plan of Reorganization (the "Plan") whereby, subject
to approval by the shareholders of Global Income Fund, Strategic Income Fund
will acquire all the assets of Global Income Fund subject to the liabilities of
such Fund, in exchange for a number of shares equal to the pro rata net assets
of shares of the Strategic Income Fund (the "Merger").
The Merger will be accounted for as a tax free merger of investment
companies. The pro forma combined financial statements are presented for the
information of the reader and may not necessarily be representative of what the
actual combined financial statements would have been had the reorganization
occurred at June 30, 2000. The unaudited pro forma portfolio of investments, and
statement of assets and liabilities reflect the financial position of Strategic
Income Fund and Global Income Fund at June 30, 2000. The unaudited pro forma
statement of operations reflects the results of operations of Strategic Income
Fund and Global Income Fund for the year ended June 30, 2000. These statements
have been derived from the Funds' respective books and records utilized in
calculating daily net asset value at the dates indicated above for Strategic
Income Fund and Global Income Fund under generally accepted accounting
principles. The historical cost of investment securities will be carried forward
to the surviving entity and results of operations of Strategic Income Fund for
pre-combination periods will not be restated.
The pro forma portfolio of investments, and statements of assets and
liabilities and operations should be read in conjunction with the historical
financial statements of the Funds incorporated by reference in the Statements of
Additional Information.
NOTE 2 - SECURITY VALUATION:
Investments in equity securities traded on a national securities exchange
or included on the NASDAQ National Market System are valued at the last reported
sale price. Securities traded on an exchange or NASDAQ for which there has been
no sale and securities traded in the over-the-counter-market are valued at the
mean between the last reported bid and ask prices. U.S. Government obligations
are valued by using market quotations or independent pricing services which use
prices provided by market-makers or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics.
All investments quoted in foreign currencies will be valued daily in U.S.
Dollars on the basis of the foreign currency exchange rates prevailing at the
time such valuation is determined by each Fund's Custodian. Securities for which
market quotations are not readily available are valued at their respective fair
values as determined in good faith and in accordance with policies set by the
Board of Directors. Investments in securities maturing in less than 60 days are
valued at cost, which, when combined with accrued interest, approximates market
value.
NOTE 3 - CAPITAL SHARES:
The pro forma net asset value per share assumes additional shares of common
stock issued in connection with the proposed acquisition of Global Income Fund
by Strategic Income Fund as of June 30, 2000. The number of additional Class A
shares issued was calculated by dividing the net asset value of the Global
Income Fund Class A shares by the respective Class A net asset value per share
of Strategic Income Fund.
NOTE 4 - PRO FORMA ADJUSTMENTS:
The accompanying pro forma financial statements reflect changes in fund
shares as if the merger had taken place on June 30, 2000. Global Income Fund
expenses were adjusted assuming Strategic Income Fund's fee structure was in
effect for the year ended June 30, 2000.
<PAGE>
NOTE 5 - MERGER COSTS:
Merger costs are estimated at approximately $125,000 and are not included
in the pro forma statement of operations since these costs are not reoccurring.
These costs represent the estimated expense of both Funds carrying out their
obligations under the Plan and consist of management's estimate of legal fees,
accounting fees, printing costs and mailing charges related to the proposed
merger. 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
Strategic Income Fund'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.
<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)
1
<PAGE>
(L) Form of Amendment No. 8 to Amended and Restated Declaration of Trust(b)
(M) Form of Amendment No. 9 to Amended and Restated Declaration of Trust(b)
(N) Form of Amendment No. 10 to Amended and Restated Declaration of Trust(a)
(O) Form of Amendment No. 11 to Amended and Restated Declaration of Trust(c)
(P) Form of Amendment No. 12 to Amended and Restated Declaration of Trust(c)
(Q) Form of Amendment No. 13 to Amended and Restated Declaration of Trust(b)
(R) Form of Amendment No. 14 to Amended and Restated Declaration of Trust(d)
(S) Form of Amendment No. 15 to Amended and Restated Declaration of Trust(e)
(T) Form of Amendment No. 16 to Amended and Restated Declaration of Trust(f)
(U) Form of Amendment No. 17 to Amended and Restated Declaration of Trust(f)
(V) Form of Amendment No. 18 to Amended and Restated Declaration of Trust(f)
(W) Form of Amendment No. 19 to Amended and Restated Declaration of Trust(g)
(X) Form of Amendment No. 20 to Amended and Restated Declaration of Trust(g)
(Y) Form of Amendment No. 21 to Amended and Restated Declaration of Trust(h)
(Z) Form of Certificate of Amendment to Certificate of Trust (i)
(AA)Form of Amendment No. 22 to Amended and Restated Declaration of Trust(i)
(BB)Form of Amendment No. 23 to Amended and Restated Declaration of Trust(j)
(CC)Form of Amendment No. 24 to Amended and Restated Declaration of Trust(o)
(2)(A)Form of Amended Bylaws of Registrant (b)
(B)Form of Amendment to Section 2.5 of Bylaws of Registrant (b)
(3) Not Applicable
(4) Form of Agreement and Plan of Reorganization between Pilgrim Global Income
Fund and Pilgrim Mutual Funds, on behalf of Pilgrim Strategic Income Fund.
(5) See Exhibits (1) and (2)
(6)(A)Form of Investment Management Agreement between the Trust and Pilgrim
Investments, Inc.(p) Form of Portfolio Management
(B)Agreement between Pilgrim Investments, Inc. and Nicholas-Applegate Capital
Management(l)
(7)Form of Underwriting Agreement between the Trust and Pilgrim Securities, Inc.
(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)
(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)
2
<PAGE>
(E) Form of Amendment to Amended and Restated Service and Distribution Plan
for Class B(j)
(F) Form of Amendment to Amended and Restated Service and Distribution Plan
for Class C(j)
(G) Form of Amendment to Amended and Restated Service and Distribution Plan
for Class A(m)
(H) Form of Amendment to Amended and Restated Service and Distribution Plan
for Class T(n)
(I) Form of Multiple Class Plan Pursuant to Rule 18f-3(n)
(11) Opinion and Consent of Counsel
(12) Opinion and Consent of Counsel supporting tax matters and consequences
(13) (A) Form of Administration Agreement(j)
(B) Form of Agency Agreement(j)
(C) Form of Shareholder Service Agreement(j)
(D) Form of Expense Limitation Agreement(j)
(E) Form of Recordkeeping Agreement(j)
(F) Form of Expense Limitation Agreement pertaining to Money Market Fund(k)
(G) Form of Agreement among Reserve Institutional Trust; Reserve Management
Company, Inc.; Reserve Partners, Inc.; Pilgrim Mutual Funds; Pilgrim
Investments, Inc. with Pilgrim Securities, Inc.(k)
(H) Form of Amended and Restated Expense Limitation Agreement(o)
(14) Consent of Independent Auditor
(15) Not Applicable
(16) Not Applicable
(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.
(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.
3
<PAGE>
(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 part of Post-Effective Amendment No. 80 to the Registrant's Form
N-1A Registration Statement as filed on November 1, 2000.
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. Hennessey
-------------------------------------------
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*
5
<PAGE>
Trustee November 30, 2000
----------------------------
David W.C. Putnam*
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. Hennessey
----------------------------
James M. Hennessy
Attorney-in-Fact**
----------
** Powers of Attorney are 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 /s/ John R. Smith
--------------------------- ---------------------------
Robert B. Goode 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
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) Form of Agreement and Plan of Reorganization between Pilgrim Global
Income Fund and Pilgrim Mutual Funds, on behalf of Pilgrim Strategic
Income Fund.
(7) Form of Underwriting Agreement between the Trust and Pilgrim Securities,
Inc.
(11) Opinion and Consent of Counsel
(12) Opinion and Consent of Counsel supporting tax matters and consequences
(14) Consent of Independent Auditor
<PAGE>
PILGRIM GLOBAL INCOME 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 Pilgrim Global Income 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 East 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 TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL:
1. To approve an Agreement and Plan of Reorganization providing for the
acquisition of all of the assets of Pilgrim Global Income Fund by Pilgrim
Strategic Income Fund in exchange for shares of beneficial interest of Pilgrim
Strategic Income Fund and the assumption by Pilgrim Strategic Income Fund of all
of the liabilities of Pilgrim Global Income Fund.
For [ ] Against [ ] Abstain [ ]
This proxy card 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
