As filed with the Securities and Exchange Commission on December 13, 2000
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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 ADVISORY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
7337 East 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 East Doubletree Ranch Road
Scottsdale, Arizona 85258
(Name and Address of Agent for Service)
With copies to:
Jeffrey S. Puretz, Esq.
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
January 12, 2001 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 SMALLCAP ASIA GROWTH FUND, INC.
7337 EAST DOUBLETREE RANCH ROAD
SCOTTSDALE, ARIZONA 85258
(800) 992-0180
_____________, 2001
Dear Shareholder:
Your Board of Directors has called a Special Meeting of Shareholders of the
Pilgrim SmallCap Asia Growth Fund scheduled to be held at _______ [a.m./p.m.],
local time, on ___________, 2001 at 7337 East Doubletree Ranch Road, Scottsdale,
Arizona 85258.
The Board of Directors has approved a reorganization of Pilgrim SmallCap
Asia Growth Fund into Pilgrim Asia-Pacific Equity Fund, each of which is managed
by ING Pilgrim Investments, Inc., ("ING Pilgrim Investments") and is part of the
Pilgrim Funds (the "Reorganization"). If approved by shareholders, you would
become a shareholder of Asia-Pacific Equity Fund on the date that the
Reorganization occurs. Asia-Pacific Equity Fund has investment objectives and
policies that are similar in many respects to those of SmallCap Asia Growth
Fund, and the Reorganization is expected to result in operating expenses that
are lower for shareholders.
You are being asked to vote to approve an Agreement and Plan of
Reorganization. The accompanying document describes the proposed transaction and
compares the policies and expenses of each of the funds for your evaluation.
After careful consideration, the Board of Directors of SmallCap Asia Growth
Fund unanimously approved this proposal and recommended shareholders vote "FOR"
the proposal.
A Proxy Statement/Prospectus that describes the Reorganization is enclosed.
We hope that you can attend the 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.
SmallCap Asia Growth 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 SMALLCAP ASIA GROWTH FUND, INC.
7337 EAST DOUBLETREE RANCH ROAD
SCOTTSDALE, ARIZONA 85258
(800) 992-0180
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF PILGRIM SMALLCAP ASIA GROWTH FUND
SCHEDULED FOR ___________, 2001
To the Shareholder:
A Special Meeting of Shareholders of the Pilgrim SmallCap Asia Growth Fund
("Special Meeting") is scheduled for _________, 2001 at _______ [a.m./p.m.],
local time, at 7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258.
At the Special Meeting, you will be asked to consider and approve the
following:
1. To approve an Agreement and Plan of Reorganization providing for the
acquisition of all of the assets and liabilities of Pilgrim SmallCap
Asia Growth Fund by Pilgrim Asia-Pacific Equity 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 Directors
James M. Hennessy,
Secretary
______________, 2001
<PAGE>
TABLE OF CONTENTS
INTRODUCTION................................................................ 1
SUMMARY .................................................................... 2
Comparison of Investment Objectives and Strategies....................... 4
Comparison of Portfolio Characteristics.................................. 4
Relative Performance..................................................... 5
Comparison of Investment Techniques and Risks of the Funds............... 6
COMPARISON OF FEES AND EXPENSES............................................. 7
General Information...................................................... 11
ADDITIONAL INFORMATION ABOUT ASIA-PACIFIC EQUITY FUND....................... 12
Investment Personnel..................................................... 12
Performance of Asia-Pacific Equity Fund.................................. 12
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 Meeting................................. 19
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 SMALLCAP ASIA GROWTH FUND
RELATING TO THE REORGANIZATION INTO PILGRIM ASIA-PACIFIC EQUITY FUND
(EACH A FUND, COLLECTIVELY, THE "FUNDS")
INTRODUCTION
This Proxy Statement/Prospectus provides you with information about a
proposed transaction. This transaction involves the transfer of all the assets
and liabilities of Pilgrim SmallCap Asia Growth Fund ("SmallCap Asia Growth
Fund"), a series of Pilgrim SmallCap Asia Growth Fund, Inc. (formerly, Lexington
Small Cap Asia Growth Fund) to Pilgrim Asia-Pacific Equity Fund ("Asia-Pacific
Equity Fund" or "Surviving Fund"), a series of Pilgrim Advisory Funds, Inc., in
exchange for shares of Asia-Pacific Equity Fund (the "Reorganization"). SmallCap
Asia Growth Fund would then distribute to its shareholders their portion of the
shares of Asia-Pacific Equity Fund it receives in the Reorganization. The result
would be a liquidation of SmallCap Asia Growth Fund. You would receive shares of
Asia-Pacific Equity Fund having an aggregate value equal to the aggregate value
of the shares you held of SmallCap Asia Growth 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 SmallCap Asia Growth Fund, are being asked
to approve a transaction that will result in your holding of shares of
Asia-Pacific Equity Fund, this Proxy Statement also serves as a Prospectus for
Asia-Pacific Equity Fund.
This Proxy Statement/Prospectus, which you should retain for future
reference, contains important information about Asia-Pacific Equity Fund that
you should know before investing. For a more detailed discussion of the
investment objectives, policies, restrictions and risks of each of the Funds,
see the Prospectus (the "Pilgrim Prospectus") and the Statements of Additional
Information for Pilgrim funds dated November 1, 2000, which may be obtained,
without charge, by calling (800) 992-0180. Each of the Funds also provides
periodic reports to its shareholders which highlight certain important
information about the Funds, including investment results and financial
information. The annual report for Asia-Pacific Equity Fund dated June 30, 2000,
is incorporated herein by reference. You may receive a copy of the most recent
annual report for either of the Funds and a copy of any more recent semi-annual
report, without charge, by calling (800) 992-0180.
You can copy and review information about each Fund (including the SAI) at
the Commission's Public Reference Room in Washington, D.C. You may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-202-942-8090. Reports and other information about the Fund are
available on the EDGAR Database on the Commission's Internet site at
http://www.sec.gov. You may obtain copies of this information, after paying a
duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing the Commission's Public Reference Section,
Washington, D.C. 20549-0102.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES, OR DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
SUMMARY
You should read this entire Proxy Statement/Prospectus carefully. For
additional information, you should consult the Pilgrim Prospectus, and the
Agreement and Plan of Reorganization, which is attached hereto as Appendix B.
THE PROPOSED REORGANIZATION. On November 2, 2000, the Board of Directors of
Pilgrim SmallCap Asia Growth Fund, Inc. 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 SmallCap Asia Growth Fund to
Asia-Pacific Equity Fund, in exchange for shares of Asia-Pacific
Equity Fund;
* the assumption by Asia-Pacific Equity Fund of all of the liabilities
of SmallCap Asia Growth Fund;
* the distribution of Asia-Pacific Equity Fund shares to the
shareholders of SmallCap Asia Growth Fund; and
* the complete liquidation of SmallCap Asia Growth 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 Class A and
Class B shares of SmallCap Asia Growth Fund, would become a shareholder of the
same Class of Asia-Pacific Equity Fund.
Each shareholder would hold, immediately after the Closing, shares of each
Class of Asia-Pacific Equity Fund having an aggregate value equal to the
aggregate value of the shares of that same Class of SmallCap Asia Growth Fund
held by that shareholder as of the close of business on the business day of the
Closing.
The Reorganization is one of many reorganizations that are proposed among
various 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 management believes have
similar or compatible investment policies. The proposed reorganizations are
designed to reduce the overlap in funds in the complex, thereby eliminating
duplication of costs and other inefficiencies arising from having similar
portfolios within the same fund group. ING Pilgrim Investments, Inc. ("ING
Pilgrim Investments") also believes that the reorganizations may benefit fund
shareholders by resulting in surviving funds with a greater asset base. This is
expected to achieve economies of scale for shareholders and may provide greater
investment opportunities for the surviving funds or the potential to take larger
portfolio positions.
Another reason for this Reorganization is that both SmallCap Asia Growth
Fund and Asia-Pacific Equity Fund are relatively small funds, and by combining,
the surviving fund will be a larger, more viable fund.
Information comparing the Funds follows. A few important points to note
are:
* The Funds have investment objectives and policies that are similar in
many respects;
2
<PAGE>
* Both Funds invest in the securities of Asian companies. Although the
SmallCap Asia Growth Fund invests in "Asia Region" companies, while
the Asia-Pacific Equity Fund invests in a somewhat different group of
"Asia-Pacific" companies, the principal difference between the
Asia-Pacific Equity Fund and the SmallCap Asia Growth Fund is the size
of the companies in which each Fund normally invests. The Asia-Pacific
Equity Fund normally invests at least 65% of its total assets in Asian
companies of any size, whereas the SmallCap Asia Growth Fund normally
invests at least 65% of its total assets in "small-cap" Asian
companies with market capitalizations of under $1 billion;
* The SmallCap Asia Growth Fund is very small. As of October 31, 2000,
it had net assets of only $4,638,058. The sub-adviser to the Fund has
provided notice that it intends to end its service to the Fund
effective January 2, 2001. The Reorganization offers shareholders of
that Fund the opportunity to participate in the larger, more viable
Asia-Pacific Equity Fund, with net assets of $18,934,629 as of October
31, 2000, and participate in stocks from the same region;
The proposed Reorganization is expected to result in a reduction in
operating expenses for shareholders of the SmallCap Asia Growth Fund. For
example, the operating expenses, expressed as a percentage of net asset value
per share for Class A shares, are as follows:
* Expenses of SmallCap Asia Growth Fund - before expense reimbursement
from management (based on the 12 month period ended June 30, 2000, as
adjusted for current expenses of contracts and 12b-1 plans which
became effective when ING Pilgrim Investments became adviser to the
Fund on July 26, 2000): 3.18%
* Expenses of SmallCap Asia Growth Fund - after expense reimbursement
from management (based on the 12 month period ended June 30, 2000, as
adjusted for current expenses of contracts and 12b-1 plans which
became effective when ING Pilgrim Investments became adviser to the
Fund on July 26, 2000): 2.75%
* Expenses of Asia-Pacific Equity Fund - before expense reimbursement
from management (based on the 12 month period ended June 30, 2000):
2.55%
* Expenses of Asia-Pacific Equity Fund - after expense reimbursement
from management (based on the 12 month period ended June 30, 2000)
2.11%
* Projected expenses of Asia-Pacific Equity Fund after the
Reorganization - before expense reimbursement from management (PRO
FORMA): 2.39%
* Projected expenses of Asia - Pacific Equity Fund after the
Reorganization - after expense reimbursement from management (PRO
FORMA): 2.11%
After careful consideration, the Board of Directors of Pilgrim SmallCap
Asia Growth Fund, Inc. unanimously approved the proposed Reorganization. The
Board recommends that you vote "FOR" the proposed Reorganization.
Approval of the Reorganization Agreement requires the affirmative vote of a
majority of the outstanding shares of SmallCap Asia Growth Fund.
3
<PAGE>
COMPARISON OF INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
SMALLCAP ASIA GROWTH FUND ASIA-PACIFIC EQUITY FUND
------------------------- ------------------------
<S> <C> <C>
INVESTMENT OBJECTIVE Seeks long-term capital appreciation. Seeks long-term capital appreciation.
INVESTMENT STRATEGIES * Normally invests at least 65% of total * Normally invests at least 65% of total assets
assets in equity securities of companies in equity securities listed on stock
in the "Asia Region" having market exchanges in countries in the "Asia-Pacific"
capitalizations of less than $1 billion. region or issued by companies of all sizes
based in this region.
* May invest 35% of its total assets in:
companies with market capitalizations of * Asia-Pacific countries include: China; Hong
$1 billion or more; companies outside Kong; Indonesia; Korea; Malaysia;
the Asia Region (e.g., Australia or New Philippines; Singapore; Taiwan and Thailand;
Zealand); debt securities; and other but not Japan and Australia.
investments.
* Does not consider Japan or Australia to be
* Asia Region countries include: Asia-Pacific countries
Bangladesh; China; Hong Kong; India;
Indonesia; Korea; Malaysia; Pakistan;
The Philippines; Singapore; Sri Lanka;
Vietnam; Taiwan; and Thailand.
* Does not intend to invest in Japanese
securities.
* During times that the investment adviser or
sub-adviser believes that stocks of
smaller companies present undue risk,
the Fund may adopt a defensive investment
posture, and invest in equity securities
of medium and large companies in the Asia
region.
INVESTMENT ADVISER ING Pilgrim Investments ING Pilgrim Investments
SUB-ADVISER Insinger Asset Management - through HSBC Asset Management - through
January 2, 2001 January 2, 2001
PORTFOLIO MANAGERS Christina Lam Fredric Lutcher III and Man Wing Chung
</TABLE>
As you can see from the chart above, the investment objectives and
strategies of the Funds are similar.
COMPARISON OF PORTFOLIO CHARACTERISTICS
The following table compares certain characteristics of the portfolios of
the Funds as of June 30, 2000.
<TABLE>
<CAPTION>
SMALLCAP ASIA GROWTH FUND ASIA-PACIFIC EQUITY FUND
------------------------- ------------------------
<S> <C> <C>
Net Assets $11,345,819 $27,702,380
Number of Holdings 35 48
Average market capitalization
of companies in portfolio
(dollar weighted): $1.2 billion(4) $1.3 billion
Range of market capitalization
of companies in portfolio: $115.0 million to $97.5 billion $231.0 million to $78.3 billion
As a percentage of net assets:
Equity Securities 90.49% 99.54%
Asia-Pacific Securities (1) 90.49% 99.54%
Companies outside Asia-Pacific Region 0.00% 0.00%
</TABLE>
4
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<TABLE>
<CAPTION>
SMALLCAP ASIA GROWTH FUND ASIA-PACIFIC EQUITY FUND
------------------------- ------------------------
<S> <C> <C>
Holdings in companies with market
capitalizations of under $1 billion 17.05% 18.60%
Holdings in companies with market
capitalizations of $1 billion
or more 73.44% 80.94%
Short-Term Debt Securities 0.00% 0.00%
Portfolio Turnover Rate 69.00%(3) 138.00%(2)
Top 5 Industries Telecommunications - 14.30% Semiconductors - 15.64%
(as a % of net assets) Internet - 10.91% Electric - 13.34%
Semiconductors - 10.51% Banks - 11.79%
Banks - 8.90% Telecommunications - 10.82%
Holding Companies - Diversified - Holding Companies - Diversified -
6.95% 8.06%
Top 10 Countries Hong Kong - 36.38% Hong Kong - 31.30%
(as a % of net assets) Taiwan - 20.41% Taiwan - 25.03%
South Korea - 16.32% South Korea - 20.17%
Singapore - 11.07% Singapore - 12.08%
Malaysia - 6.31% Malaysia - 5.69%
Thailand - 3.23%
China - 1.00%
Indonesia - 0.77%
Philippines - 0.26%
Top 10 Holdings Samsung Electronics Co. - 4.13% Samsung Electronics - 8.60%
(as a % of net assets) Hutchison Whampoa Ltd. - 4.00% Cheung Kong Hldg. - 4.79%
HSBC Holdings PLC - 3.83% DBS Group Hldg Ltd. - 4.64%
Cheung Kong Holdings - 3.59% China Mobile Ltd. - 4.49%
Bank of East Asia - 3.59% Hutchison Whampoa - 4.34%
China Unicom - 3.58% Korea Telecom - 3.44%
SK Corp. - 3.48% Taiwan Semiconductor Mfg Co.,
Korea Telecom - 2.33% Ltd. - 3.41%
Apt Satellite Hldg - 2.16% H&CB - 3.03%
Asia World Online - 1.24% Korea Electric Power Corp. - 2.80%
Pacific Century CyberWorks
Ltd. - 1.78%
</TABLE>
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(1) As defined in the chart entitled "Comparison of Investment Objectives."
(2) For the 12 month period ended June 30, 2000.
(3) For the 6 month period ended June 30, 2000, not annualized.
(4) During this period the Fund's average market capitalization was over $1
billion due to the Fund investing in larger companies as a defensive
measure.
RELATIVE PERFORMANCE
The following table shows, for each calendar year since 1995 and the period
January 1, 2000 to September 30, 2000, the average annual total return for: (a)
Class A shares of SmallCap Asia Growth Fund; (b) Class A shares of Asia-Pacific
Equity Fund; and (c) the Morgan Stanley Capital International Far East Free
ex-Japan ("MSCI Far East Free ex-Japan") Index. Performance of the Funds in the
table does not reflect the deduction of sales loads, and would be lower if they
did. The index has inherent performance advantages over the Funds since it has
no cash in its portfolio, imposes no sales charges and incurs no operating
expenses. An investor cannot invest directly in an index. Total return is
calculated assuming reinvestment of all dividends and capital gain distributions
at net asset value and excluding the deduction of sales charges. The Funds' past
performance is not an indication of future performance.
5
<PAGE>
MSCI FAR EAST
CALENDAR YEAR SMALLCAP ASIA ASIA-PACIFIC FREE EX-JAPAN
PERIOD/ENDED GROWTH FUND(2) EQUITY FUND(3) INDEX(4)
------------ -------------- -------------- --------
12/31/96 25.50% 9.46% 8.90%
12/31/97 -42.32% -43.73% -45.48%
12/31/98 -19.41% -15.51% -7.39%
12/31/99 57.29% 74.41% 59.40%
1/1/00 - 9/30/00(1) -23.69% -38.07% -28.70%
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(1) Not annualized.
(2) SmallCap Asia Growth Fund Class A commenced operations on July 3, 1995.
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
date.
(3) Asia-Pacific Equity Fund commenced operations on September 1, 1995. For
more information about the performance of Asia-Pacific Equity Fund, see
"Additional Information about Asia-Pacific Equity Fund."
(4) The MSCI Far East Free ex-Japan Index is an unmanaged index that measures
the performance of securities listed on exchanges in the Far East markets
excluding Japan. This index is used to measure performance with respect to
both Funds.
NOTE: CHANGE IN PORTFOLIO MANAGEMENT FOR BOTH FUNDS: As discussed more
fully below, effective January 2, 2001, Insinger Asset Management will no longer
serve as sub-adviser to the SmallCap Asia Growth Fund. Effective January 2,
2001, HSBC Asset Management will no longer serve as sub-adviser to the
Asia-Pacific Equity Fund. ING Pilgrim Investments shall assume the day-to-day
management of both Funds.
COMPARISON OF INVESTMENT TECHNIQUES AND RISKS OF THE FUNDS
Because the Funds have investment objectives and policies that are
substantially similar in many respects, many of the risks of investing in
Asia-Pacific Equity Fund are similar to the risks of investing in SmallCap Asia
Growth Fund. The principal risk of an investment in either Fund is that you may
lose money on your investment. Each Fund's shares may go up or down, sometimes
rapidly and unpredictably. The value of each Fund's investments may fall as the
prices of its investments go up or down. Market conditions, financial conditions
of issuers represented in the portfolio, investment policies, portfolio
management, and other factors affect such fluctuations.
EQUITY SECURITIES. Equity securities face market, issuer and other risks,
and their values may go up or down, sometimes rapidly and unpredictably. Market
risk is the risk that securities may decline in value due to factors affecting
securities markets generally or particular industries. Issuer risk is the risk
that the value of a security may decline for reasons relating to the issuer,
such as changes in the financial condition of the issuer. While equities may
offer the potential for greater long-term growth than most debt securities, they
generally have higher volatility. In particular, the SmallCap Asia Growth Fund
(and, to some degree, the Asia-Pacific Equity Fund) may invest in small
companies, which may be more susceptible to price swings than larger companies,
because they may have fewer financial resources, more limited product and market
diversification and many are dependent on a few key managers.
6
<PAGE>
RISKS OF THE ASIA-PACIFIC REGION. The Asia-Pacific region includes
countries in various stages of economic development, including emerging market
countries. In 1997 and 1998, securities markets in Asian countries suffered
significant downturns and volatility, and currencies lost value in relation to
the U.S. dollar. Currency devaluation in any one country may have a significant
effect on the entire region. Political or social unrest in some or all Asian
countries could cause further economic and market uncertainty. Moreover, because
each Fund concentrates on a single region of the world, their performance may be
more volatile than that of a fund that invests globally. If Asia-Pacific
securities fall out of favor, it may cause the Funds to underperform funds that
focus on other types of stocks.
Investment in any foreign investments may be riskier than U.S. investments
for many reasons, including changes in currency exchange rates, unstable
political and economic conditions, a lack of adequate company information,
differences in the way securities markets operate, less secure foreign banks or
securities depositories than those in the U.S., and foreign controls on
investment. To the extent the Funds invest in emerging market countries, the
risks may be greater, partly because emerging market countries may be less
politically and economically stable than other countries. It may also be more
difficult to buy and sell securities in emerging market countries
INABILITY TO SELL SECURITIES. Securities of smaller and emerging market
companies trade in lower volume and may be less liquid than securities of
companies in larger, more established markets. The Funds could lose money if
they cannot sell a security at the time and price that would be most beneficial
to them.
CHANGE IN PORTFOLIO MANAGEMENT. The Asia-Pacific Equity Fund will undergo a
change in portfolio management at or around January 2, 2001, at which time HSBC
Asset Management, Inc., HSBC Asset Management (Hong Kong) Limited and HSBC Asset
Management (Europe) Limited (collectively, "HSBC") will no longer serve as
sub-adviser to the Asia-Pacific Equity Fund. ING Pilgrim Investments will manage
the Asia-Pacific Equity Fund directly. Shareholders bear the risk that the new
portfolio managers will not be able to sustain the Asia-Pacific Equity Fund's
historical relative performance.
With the assumption of portfolio management duties by ING Pilgrim
Investments, portfolio turnover may be higher than usual in connection with the
potential restructuring of the holdings of the Asia-Pacific Equity Fund to
reflect the management style of ING Pilgrim Investments. Such potential
restructuring may result in transactional costs to the Fund and may result in
accelerated capital gain distribution as a result of the turnover.
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 Asia-Pacific
Equity Fund, see "Appendix C: Additional Information Regarding Pilgrim
Asia-Pacific Equity Fund."
TOTAL OPERATING EXPENSES. After management subsidies, the operating
expenses of Asia-Pacific Equity Fund, expressed as a ratio of expenses to
average daily net assets ("expense ratio"), were lower than those of SmallCap
Asia Growth Fund. For the 12 month period ended June 30, 2000, after management
subsidies, the net expenses for Class A shares of Asia-Pacific Equity Fund were
2.11%, lower than those of the same Class of SmallCap Asia Growth Fund, which
were 2.75%. Without the expense limitation agreement, the total operating
expenses for Class A shares of the Asia-Pacific Equity Fund would have been
higher.
The operating expenses for SmallCap Asia Growth Fund are based upon
expenses incurred by the Fund for the 12 month period ended June 30, 2000,
adjusted for current expenses of contracts and distribution plans which became
effective when ING Pilgrim Investments became adviser to the Fund on July 26,
2000.
7
<PAGE>
EXPENSE LIMITATION ARRANGEMENTS. Expense limitation arrangements are in
place for SmallCap Asia Growth Fund and Asia-Pacific Equity Fund. Under the
terms of the SmallCap Asia Growth Fund expense limitation agreement, ING Pilgrim
Investments has agreed to limit the expenses of the Fund, excluding interest,
taxes, brokerage and extraordinary expenses, subject to possible reimbursement
to ING Pilgrim Investments within three years. The current expense limitation
agreement for the SmallCap Asia Growth Fund provides that it will remain in
effect through at least July 26, 2002. There is no assurance that the expense
limitation agreement will be continued after that date. The expense limitations
for Classes A and B of SmallCap Asia Growth Fund are 2.75% and 3.50%,
respectively.
Under the terms of the Asia-Pacific Equity Fund expense limitation
agreement, ING Pilgrim Investments has agreed to limit the expenses of the Fund,
excluding interest, taxes, brokerage and extraordinary and other expenses,
subject to possible reimbursement to ING Pilgrim Investments within three years.
The current expense limitation agreement for the Asia-Pacific Equity Fund
provides that it will remain in effect through at least October 31, 2001. There
is no assurance that the expense limitation agreement will be continued after
that date. The expense limitations for Classes A and B of Asia-Pacific Equity
Fund are 2.00% and 2.75%, respectively. This information and similar information
for the other Classes is shown in the table below entitled "Annual Fund
Operating Expenses."
It is expected that the expense ratios of the Asia-Pacific Equity Fund
after the Reorganization will be 2.11% and 2.86% for Classes A and B,
respectively, after reimbursement of expenses.
MANAGEMENT FEE. Asia-Pacific Equity Fund and SmallCap Asia Growth Fund both
have an annual management fee of 1.25% of the Fund's average daily net assets.
DISTRIBUTION AND SERVICE FEES. The distribution (12b-1) and service fees of
SmallCap Asia Growth Fund are the same as those of Asia-Pacific Equity Fund.
EXPENSE TABLE. The current expenses of each of the Funds and estimated PRO
FORMA expenses giving effect to the proposed Reorganization are shown in the
following table. Expenses for the Funds are annualized based upon the operating
expenses incurred by Class A and Class B shares of the Fund for the period ended
June 30, 2000. The operating expenses of SmallCap Asia Growth Fund are adjusted
for current expenses of contracts and 12b-1 plans which became effective when
ING Pilgrim Investments became adviser to the Fund on July 26, 2000. PRO FORMA
fees show estimated fees of Asia-Pacific Equity Fund after giving effect to the
proposed Reorganization. PRO FORMA numbers are estimated in good faith and are
hypothetical, and reflect adjustments in contractual charges.
8
<PAGE>
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 TOTAL FUND
MANAGEMENT SHAREHOLDER OTHER OPERATING FEE WAIVER NET FUND
FEES SERVICING FEES(3) EXPENSES EXPENSES BY ADVISER(4) EXPENSES
---- ----------------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Asia-Pacific Equity Fund 1.25% 0.25% 1.05% 2.55% -0.44% 2.11%
SmallCap Asia Growth Fund 1.25% 0.25% 1.68% 3.18% -0.43% 2.75%
Surviving Fund After
Reorg. (PRO FORMA) 1.25% 0.25% 0.89% 2.39% -0.28% 2.11%
CLASS B(2)
Asia-Pacific Equity Fund 1.25% 1.00% 1.05% 3.30% -0.55% 2.75%
SmallCap Asia Growth Fund 1.25% 1.00% 1.68% 3.93% -0.43% 3.50%
Surviving Fund After
Reorg. (PRO FORMA) 1.25% 1.00% 0.89% 3.14% -0.28% 2.86%
</TABLE>
----------
(1) Asia-Pacific Equity Fund's fiscal year ends June 30, whereas SmallCap Asia
Growth Fund's fiscal year ends December 31. Expenses of the Funds on a PRO
FORMA basis are estimated based upon expenses incurred by each Fund for the
12 month period ended June 30, 2000 as adjusted for estimated contractual
operating expenses; PRO FORMA expenses are adjusted for anticipated
contractual changes. Expenses of SmallCap Asia Growth Fund are based upon
expenses incurred by the Fund for the 12 month period ended June 30, 2000,
adjusted for current expenses of contracts and 12b-1 plans which became
effective when ING Pilgrim Investments became adviser to the Fund on July
26, 2000.
(2) Because Class B shares of SmallCap Asia Growth Fund were not offered during
the period ended December 31, 1999, their expenses are estimated based on
Class A expenses.
(3) 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.
(4) ING Pilgrim Investments has entered into expense limitation agreements that
limit expenses (excluding interest, taxes, brokerage and extraordinary
expenses) for each of the Funds. The current expense limitation agreement
for the SmallCap Asia Growth Fund provides that it will remain in effect
through at least July 26, 2002. There is no assurance that the expense
limitation agreement will be continued after that date. The expense
limitations for Classes A and B of SmallCap Asia Growth Fund are 2.75% and
3.50%, respectively. The current expense limitation agreement for the
Asia-Pacific Equity Fund provides that it will remain in effect through at
least October 31, 2001. There is no assurance that the expense limitation
agreement will be continued after that date. The expense limitations for
Classes A and B of Asia-Pacific Equity Fund are 2.00% and 2.75%,
respectively.
Following the Reorganization and in the ordinary course of business as a
mutual fund, certain holdings of SmallCap Asia Growth Fund that are transferred
to Asia-Pacific Equity Fund in connection with the Reorganization may be sold.
Such sales may result in increased transaction costs for Asia-Pacific Equity
Fund, and the realization of taxable gains or losses for Asia-Pacific Equity
Fund.
9
<PAGE>
EXAMPLES. The examples are intended to help you compare the cost of
investing in the each of the Funds and in the combined Funds on a pro forma
basis--assuming the Funds have been combined. The examples assume that you
invest $10,000 in each Fund and in the combined Fund after the Reorganization
for the time periods indicated. The examples also assume that your investment
has a 5% return each year and that each Fund's operating expenses remain the
same. The 5% return is an assumption and is not intended to portray past or
future investment results. Based on the above assumptions, you would pay the
following expenses if you redeem your shares at the end of each period shown.
Because this is an estimate, your actual costs may be higher or lower.
<TABLE>
<CAPTION>
ASIA-PACIFIC EQUITY FUND AFTER
ASIA-PACIFIC EQUITY FUND SMALLCAP ASIA GROWTH FUND REORGANIZATION
------------------------------- ------------------------------ --------------------------------
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 $777 $1,283 $1,815 $3,263 $837 $1,461 $2,108 $3,832 $777 $1,252 $1,753 $3,124
Class B $789 $1,275 $1,884 $3,394* $853 $1,459 $2,183 $3,960* $789 $1,242 $1,820 $3,255*
</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.
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
ASIA-PACIFIC EQUITY FUND AFTER
ASIA-PACIFIC EQUITY FUND SMALLCAP ASIA GROWTH FUND REORGANIZATION
------------------------------- ------------------------------ --------------------------------
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 $777 $1,283 $1,815 $3,263 $837 $1,461 $2,108 $3,832 $777 $1,252 $1,753 $3,124
Class B $289 $ 975 $1,684 $3,394* $353 $1,159 $1,983 $3,960* $289 $ 942 $1,620 $3,255*
</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.
10
<PAGE>
GENERAL INFORMATION
Class A and Class B shares of Asia-Pacific Equity 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 SmallCap Asia Growth Fund held by that shareholder immediately prior to the
Reorganization.
In addition, the period that the shareholder held shares of SmallCap
Asia Growth Fund will be included in the holding period of Asia-Pacific Equity
Fund shares for purposes of calculating any contingent deferred sales charge.
Similarly, Class B shares of Asia-Pacific Equity 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 SmallCap Asia Growth Fund were
purchased by the shareholder. Asia-Pacific Equity Fund and SmallCap Asia Growth
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)
CLASS A CLASS B
------- -------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) 5.75%(1) 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) Reduced for purchases of $50,000 and over. See "Class A Shares: Initial
Sales Charge Alternative" in Appendix C.
(2) A contingent deferred sales charge of no more than 1.00% may be assessed on
redemptions of Class A shares that were purchased without an initial sales
charge as part of an investment of $1 million or more. See "Class A Shares:
Initial Sales Charge Alternative" in Appendix C.
(3) Imposed upon redemptions within 6 years of purchase. The fee has scheduled
reductions after the first year. See "Class B Shares: Deferred Sales Charge
Alternative" in Appendix C and "Deferred Sales Charges" in the Pilgrim
Prospectus.
Neither Asia-Pacific Equity Fund nor SmallCap Asia Growth Fund have any
redemption fees, exchange fees or sales charges on reinvested dividends.
11
<PAGE>
ADDITIONAL INFORMATION ABOUT ASIA-PACIFIC EQUITY FUND
INVESTMENT PERSONNEL
Fredric Lutcher III, Managing Director, Chief Financial Officer, HSBC
Americas, and Man Wing Chung, Chief Investment Officer Asia (ex Japan), HSBC
Hong Kong, are primarily responsible for portfolio management of Asia Pacific
Equity Fund. Mr. Lutcher joined HSBC in 1997, and has over 20 years of
investment experience. Prior to joining HSBC, Mr. Lutcher was with Merrill Lynch
Asset Management. Mr. Chung has been with HSBC since 1993 and has over 12 years
investment experience.
NOTE: CHANGE IN PORTFOLIO MANAGEMENT FOR BOTH FUNDS: Effective January 2,
2001, Insinger Asset Management will no longer serve as sub-adviser to the
SmallCap Asia Growth Fund. Effective January 2, 2001, HSBC Asset Management will
no longer serve as sub-adviser to the Asia-Pacific Equity Fund. ING Pilgrim
Investments shall assume the day-to-day management of both Funds. The fees
payable to ING Pilgrim Investments for serving as investment adviser will not
change.
Effective January 2, 2001, Richard T. Saler, Philip A. Schwartz, Jan Wim
Derks and Bratin Sanyal will assume and share the responsibility for the
day-to-day management of the SmallCap Asia Growth Fund and the Asia-Pacific
Equity Fund.
Mr. Saler has over 13 years of experience in international investments. He
is Senior Vice President and Director of International Equity Investment
Strategy of ING Pilgrim and held similar positions with Lexington Management
Corporation ("LMC") prior to that firm's acquisition by the parent company of
ING Pilgrim in July, 2000. Mr. Saler is a member of an investment management
team that manages the Pilgrim Global Corporate Leaders Fund, Lexington Emerging
Markets Fund, Pilgrim Emerging Countries Fund, Pilgrim Worldwide Emerging
Markets Fund and Pilgrim International Fund. Mr. Saler has focused on
international markets since joining LMC in 1986.
Mr. Schwartz has over 13 years experience in international investments. He
is Senior Vice President and Director of International Equity Investment
Strategy of ING Pilgrim, and held the same positions with LMC prior to that
firm's recent acquisition. He is also a Chartered Financial Analyst and a member
of the New York Society of Security Analysts. Mr. Schwartz is a member of an
investment management team that manages the Pilgrim Global Corporate Leaders
Fund, Lexington Emerging Markets Fund, Pilgrim Emerging Countries Fund, Pilgrim
Worldwide Emerging Markets Fund and Pilgrim International Fund. Prior to joining
LMC in 1993, he was Vice President of European Research Sales with Cheuvreux De
Virieu in Paris and New York, serving the institutional market. Prior to
Cheuvreux, Mr. Schwartz was affiliated with Olde and Co. and Kidder, Peabody as
a stockbroker.
PERFORMANCE OF ASIA-PACIFIC EQUITY FUND
The bar chart and table that follow provide an indication of the risks of
investing in Asia-Pacific Equity Fund by showing (on a calendar year basis)
changes in Asia-Pacific Equity Fund's annual total return from year to year and
by showing (on a calendar year basis) how Asia-Pacific Equity Fund's average
annual returns since inception compare to those of the MSCI Far East Free
ex-Japan Index. The information in the bar chart is based on the performance of
the Class A shares of Asia-Pacific Equity 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
Asia-Pacific Equity 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.
12
<PAGE>
CALENDAR YEAR -BY-YEAR RETURNS (1)(2)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999(3)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
9.46% -43.73 -15.51 74.41
----------
(1) During the period shown in the chart, the Fund's best quarterly performance
was up 39.92% for the quarter ended June 30, 1999, and the Fund's worst
quarterly performance was down 33.11% for the quarter ended December 31,
1997.
(2) The Fund's year to date total return through September 30, 2000 is -38.07%.
(3) Returns in 1999 were primarily achieved during unusually favorable
conditions in the market, particularly for Asia-Pacific region companies.
(See "Comparison of Investment Techniques and Risks of the Funds" above.)
You should not expect that such favorable returns can consistently be
achieved.
The table below shows what the average annual total returns of Asia-Pacific
Equity Fund would equal if you averaged out actual performance over various
lengths of time, compared to the MSCI Far East Free ex-Japan Index. The MSCI Far
East Free ex-Japan Index has inherent performance advantages over Asia-Pacific
Equity 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.
Asia-Pacific Equity Fund's performance reflected in the table assumes the
deduction of the maximum sales charge in all cases.
AVERAGE ANNUAL TOTAL RETURNS for the periods ended December 31, 1999(1)
SINCE
1 YEAR INCEPTION
------ ---------
Inception
Asia-Pacific Equity Fund - Class A(2) 64.46% -3.80%
Asia-Pacific Equity Fund - Class B(3) 68.00% -3.72%
MSCI Far East Free ex-Japan Index(4) 59.40% -2.14%
----------
(1) The Fund commenced operations on September 1, 1995.
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 2% for the 1 year and
since inception returns, respectively.
(4) The MSCI Far East Free ex-Japan Index is an unmanaged index that measures
the performance of securities listed on exchanges in the Far East markets
excluding Japan.
The table below shows the performance of Asia-Pacific Equity Fund if sales
charges are not reflected.
AVERAGE ANNUAL TOTAL RETURNS for the periods ended December 31, 1999
SINCE
1 YEAR INCEPTION
------ ---------
Asia-Pacific Equity Fund - Class A 74.41% -2.48%
Asia-Pacific Equity Fund - Class B 73.00% -3.27%
For a discussion by the adviser regarding the performance of the Asia-Pacific
Equity Fund for the year ended June 30, 2000, see Appendix A to this Proxy
Statement/Prospectus. Additional information about Asia-Pacific Equity Fund is
included in Appendix C to this Proxy Statement/Prospectus.
13
<PAGE>
INFORMATION ABOUT THE REORGANIZATION
THE REORGANIZATION AGREEMENT. The Reorganization Agreement provides for the
transfer of all of the assets and liabilities of SmallCap Asia Growth Fund to
Asia-Pacific Equity Fund in exchange for shares of Asia-Pacific Equity Fund.
SmallCap Asia Growth Fund will distribute the shares of Asia-Pacific Equity Fund
received in the exchange to the shareholders of SmallCap Asia Growth Fund and
then SmallCap Asia Growth Fund will be liquidated.
After the Reorganization, each shareholder of SmallCap Asia Growth Fund
will own shares in Asia-Pacific Equity Fund having an aggregate value equal to
the aggregate value of each respective Class of shares in SmallCap Asia Growth
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 SmallCap Asia Growth Fund
will receive shares of the corresponding Class of Asia-Pacific Equity Fund. In
the interest of economy and convenience, shares of Asia-Pacific Equity Fund
generally will not be represented by physical certificates, unless requested in
writing.
Until the Closing, shareholders of SmallCap Asia Growth Fund will continue
to be able to redeem their shares. Redemption requests received after the
Closing will be treated as requests received by Asia-Pacific Equity 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 SmallCap Asia
Growth 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 management believes have similar or compatible investment policies.
The proposed reorganizations are designed to reduce the overlap in funds in the
complex, thereby eliminating duplication of costs and other inefficiencies
arising from having similar portfolios within the same fund group. ING Pilgrim
Investments also believes that the reorganizations may benefit fund shareholders
by resulting in surviving funds with a greater asset base. This is expected to
achieve economies of scale for shareholders and may provide greater investment
opportunities for the surviving funds or the potential to take larger portfolio
positions.
14
<PAGE>
Another reason for this Reorganization is that both SmallCap Asia Growth
Fund and Asia-Pacific Equity Fund are relatively small funds, and by combining,
the surviving fund will be a larger, more viable fund.
The proposed Reorganization was approved by the Board of Directors of
Pilgrim SmallCap Asia Growth Fund, Inc. at a meeting held on November 2, 2000.
For the reasons discussed below, the Directors, including all of the Directors
who are not "interested persons" (as defined in the Investment Company Act of
1940) of Pilgrim SmallCap Asia Growth Fund, Inc. determined that the interests
of the shareholders of SmallCap Asia Growth Fund will not be diluted as a result
of the proposed Reorganization, and that the proposed Reorganization is in the
best interests of SmallCap Asia Growth Fund and its shareholders.
The Reorganization will allow SmallCap Asia Growth Fund's shareholders to
continue to participate in a professionally-managed portfolio which seeks to
achieve an objective of appreciation or growth of capital. As shareholders of
Asia-Pacific Equity Fund, these shareholders will be able to exchange into other
mutual funds in the group of Pilgrim funds that offer the same Class of shares
in which such shareholder 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 Directors of Pilgrim SmallCap Asia
Growth Fund, Inc., 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. expense ratios and information regarding fees and expenses of SmallCap
Asia Growth Fund and Asia-Pacific Equity Fund, including the expense
limitation arrangements offered by ING Pilgrim Investments for each
Fund;
3. the small size of the SmallCap Asia Growth Fund;
4. estimates that show that combining the Funds is expected to result in
lower expense ratios because of economies of scale expected to result
from an increase in the asset size of the reorganized Fund;
5. whether the Reorganization would dilute the interests of SmallCap Asia
Growth Fund's and Asia-Pacific Equity Fund's current shareholders;
6. the relative investment performance and risks of Asia-Pacific Equity
Fund as compared to SmallCap Asia Growth Fund;
7. the similarity of Asia-Pacific Equity Fund's investment objectives,
policies and restrictions with those of SmallCap Asia Growth Fund; and
8. the tax-free nature of the Reorganization to SmallCap Asia Growth Fund
and Asia-Pacific Equity Fund and their shareholders.
The Directors of Pilgrim SmallCap Asia Growth Fund, Inc. recommend that
shareholders approve the Reorganization with Asia-Pacific Equity 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 SmallCap Asia Growth Fund nor its shareholders nor
Asia-Pacific Equity 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 Pilgrim Advisory Funds, Inc. and Pilgrim
SmallCap Asia Growth Fund, Inc.
Immediately prior to the Reorganization, SmallCap Asia Growth Fund will pay
a dividend or dividends which, together with all previous dividends, will have
the effect of distributing to its shareholders all of SmallCap Asia Growth
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 SmallCap
Asia Growth Fund's shareholders.
As of December 31, 1999, SmallCap Asia Growth Fund had accumulated capital
loss carryforwards in the amount of approximately $11,184,423. As of June 30,
2000, Asia-Pacific Equity Fund had accumulated capital loss carryforwards in the
amount of approximately $23,348,395. After the Reorganization, these loss
carryforwards generally will be available to Asia-Pacific Equity Fund to offset
its capital gains. Also, after the Reorganization, the losses of SmallCap Asia
Growth Fund will be available to Asia-Pacific Equity Fund to offset its capital
gains, although a portion of the amount of these losses which may offset
Asia-Pacific Equity Fund's capital gains in any given year will be limited. As a
result of this limitation, it is possible that Asia-Pacific Equity Fund may not
be able to use its losses as rapidly as it might have had the Reorganization not
occurred, and part of these losses may not be useable at all. The ability of
Asia-Pacific Equity Fund to absorb losses in the future depends on a variety of
factors, many of which 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 Asia-Pacific Equity 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 Asia-Pacific Equity Fund.
EXPENSES OF THE REORGANIZATION. 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,
including but not limited to, the costs of solicitation of voting instructions
and any necessary filings with the Securities and Exchange Commission. Of the
Reorganization expenses allocated to the Funds, each Fund will bear a ratable
portion based on their relative net asset values immediately before Closing.
ADDITIONAL INFORMATION ABOUT THE FUNDS
FORM OF ORGANIZATION. Asia-Pacific Equity Fund is a series of Pilgrim
Advisory Funds, Inc., which is a Maryland Corporation. Pilgrim SmallCap Asia
Growth Fund, Inc. is a Maryland Corporation. Pilgrim SmallCap Asia Growth Fund
and Pilgrim Advisory Funds are each governed by a Board of Directors. The Board
of Directors of both Funds has the same eleven members.
DISTRIBUTOR. ING Pilgrim Securities, Inc. (the "Distributor"), whose
address is 7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258, is the
principal distributor for each of the Funds. The Asia-Pacific Equity Fund also
offers other shares, which may have different sales charges and other expenses
that may affect their performance. You can obtain more information about these
other share Classes by calling (800) 992-0180.
16
<PAGE>
DIVIDENDS AND OTHER DISTRIBUTIONS. Each Fund pays dividends from net
investment income and net 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 SmallCap Asia Growth Fund's
shareholders, then as soon as practicable before the Closing, SmallCap Asia
Growth 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 the SmallCap Asia Growth Fund and the Asia-Pacific Equity Fund
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
---------- --------- -----------
SMALLCAP ASIA GROWTH FUND
Class A $11,345,819 $8.01 1,417,153
Class B
ASIA-PACIFIC EQUITY FUND
Class A $11,725,688 $7.23 1,621,404
Class B $12,227,613 $6.97 1,753,705
Class M $3,749,079 $7.04 532,713
PRO FORMA (COMBINED)
Class A $23,071,507 $7.23 3,191,080
Class B $12,227,613 $6.97 1,753,705
Class M $3,749,079 $7.04 532,713
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 SmallCap Asia Growth 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.
SmallCap Asia Growth Fund has retained Shareholder Communications Corporation, a
professional proxy solicitation firm, to assist with any necessary solicitation
of proxies. Shareholders of SmallCap Asia Growth Fund may receive a telephone
call from the professional proxy solicitation firm asking the shareholder to
vote.
A shareholder may revoke the accompanying proxy at any time prior to its
use by filing with SmallCap Asia Growth Fund, a written revocation or duly
executed proxy bearing a later date. In addition, any shareholder who attends
the Meeting in person may vote by ballot at the Meeting, thereby canceling any
proxy previously given. The persons named in the accompanying proxy will vote as
directed by the proxy, but in the absence of voting directions in any proxy that
17
<PAGE>
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 Directors of SmallCap Asia Growth Fund, Inc. that may be presented
at the Meeting.
VOTING RIGHTS
Shareholders of SmallCap Asia Growth 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 SmallCap Asia Growth Fund at the close of business on
______ ___, 2000 (the "Record Date") will be entitled to be present and give
voting instructions for SmallCap Asia Growth Fund at the Meeting with respect to
their shares owned as of that Record Date. As of the Record Date, ______ shares
of SmallCap Asia Growth Fund were outstanding and entitled to vote.
Approval of the Reorganization requires the affirmative vote of a majority
of the outstanding shares of SmallCap Asia Growth Fund.
The presence in person or by proxy of the holders of one-third of the
shares of stock of the corporation entitled to vote (without regard to class)
shall constitute a quorum at any meeting of the stockholders.
If a shareholder abstains from voting as to any matter, or if a broker
returns a "non-vote" proxy, indicating a lack of authority to vote on a matter,
the shares represented by the abstention or non-vote will be deemed present at
the meeting for purposes of determining a quorum. However, abstentions and
broker non-votes will not be deemed represented at the meeting for purposes of
calculating the vote on any matter. As a result, an abstention or broker
non-vote will have the same effect as a vote against the Reorganization.
The Funds expect that, before the meeting, broker-dealer firms holding
shares of the Funds in "street name" for their customers will request voting
instructions from their customers and beneficial owners. If these instructions
are not received by the date specified in the broker-dealer firms' proxy
solicitation materials, the Funds understand that the broker-dealers that are
members of the New York Stock Exchange may vote on the items to be considered at
the meeting on behalf of their customers and beneficial owners under the rules
of the New York Stock Exchange.
To the knowledge of Pilgrim SmallCap Asia Growth Fund, Inc., as of November
1, 2000, no current Director owns 1% or more of the outstanding shares of
SmallCap Asia Growth Fund, and the officers and Directors own, as a group, less
than 1% of the shares of SmallCap Asia Growth 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
Asia-Pacific Equity Fund. As of November 1, 2000, no person owned beneficially
or of record 5% or more of the outstanding shares of any Class of the SmallCap
Asia Growth Fund.
18
<PAGE>
OTHER MATTERS TO COME BEFORE THE MEETING
Pilgrim SmallCap Asia Growth Fund, Inc. does not know of any matters to be
presented at the meeting other than those described in this Proxy
Statement/Prospectus. If other business should properly come before the meeting,
the proxyholders will vote thereon in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Pilgrim SmallCap Asia Growth Fund, Inc. is not required to hold regular
annual meetings and, in order to minimize their costs, do not intend to hold
meetings of shareholders unless so required by applicable law, regulation,
regulatory policy or if otherwise deemed advisable by SmallCap Asia Growth
Fund's management. Therefore it is not practicable to specify a date by which
shareholder proposals must be received in order to be incorporated in an
upcoming proxy statement for an annual meeting.
REPORTS TO SHAREHOLDERS
ING Pilgrim Investments will furnish, without charge, a copy of the most
recent Annual Report regarding SmallCap Asia Growth Fund and the most recent
Semi-Annual Report succeeding the Annual Report, if any, on request. Requests
for such reports should be directed to Pilgrim at 7337 East Doubletree Ranch
Road, Scottsdale, Arizona 85258 or at (800) 992-0180.
In order that the presence of a quorum at the meeting may be assured,
prompt execution and return of the enclosed proxy card is requested. A
self-addressed, postage-paid envelope is enclosed for your convenience.
James M. Hennessy,
Secretary
___________, 2000
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258
19
<PAGE>
APPENDIX A
Set forth below is an excerpt from Pilgrim Asia-Pacific Equity Fund's
Annual Report dated June 30, 2000, regarding the fund's performance.
MANAGEMENT TEAM WITH HSBC AMERICAS AND HSBC HONG KONG: David Stuart, Regional
CIO, Asia Pacific; Man-Wing Chung, CIO, Asia ex-Japan Equities; Marcus Pakenham,
Director; Sam Lau, Director; Richard Wong, Associate Director; Leilani Lam,
Associate Director; Simon Yap, Associate Director; Seng-Keong Wan, Senior
Investment Manager; Vernon Yu, Senior Investment Manager; Losa Mak, Investment
Manager; Krista Yue, Investment Manager.
GOAL: The Asia-Pacific Equity Fund (the "Fund" or "Asia-Pacific Equity") seeks
long-term capital appreciation by investing in equity securities listed on stock
exchanges in the Asia-Pacific region or issued by companies based in this
region.
MARKET OVERVIEW: During the year ended June 30, 2000, rallies in the US and
Nasdaq helped performances of a few equity markets before the millennium.
However, profit taking and concerns on interest rate hikes erased some of the
gains entering into 2000. Hong Kong was the best performer, up 19.4% on the Hang
Seng Index. However, the index registered declines both on a six-month and
quarterly basis on concerns over the valuation of high tech stocks and rising US
interest rates. June saw a rebound as softer economic numbers from the US
prompted hopes of interest rate peaking. Malaysia (+2.8%) posted gains,
initially on MSCI reinclusion but succumbed to profit taking following
downgrades by major brokers after its outperformance. For the one year ended
June 30, 2000, the rest of the Asian market underperformed. Taiwan (-2.4%) eased
on political concerns despite buying from government-related funds. Singapore
DBS50 (-6.0%) feel in the absence of a fresh catalyst for re-rating even as the
country's safe haven status remained intact. Korea (-7.0%) eased predominately
due to redemption-driven selling by investment trust companies. But June saw a
turning in sentiment as both retail and foreign investors stepped up their
buying ahead of the historical summit meeting between North and South Korean
leaders. Indonesia (-22.2%) abated on MSCI-related asset allocation shift,
political uncertainty, religious clashes and a weakening currency. Thailand
(-37.6%) dived on concerns over the slow progress of bad debt restructuring in
the banking sector, announcements of equity capital raising, and increasing
policies uncertainties.
The better-than-expected corporate earnings and positive economic number (1Q00
GDP +5.2%) were largely ignored. Philippines (-38.3%) tumbled on disappointing
macro picture, faltering public confidence in President Estrada, the failure to
quickly resolve the Sipidan hostage crisis and the heightened tension between
the Muslim extremists and the government.
PERFORMANCE: For the year ended June 30, 2000, the Fund's Class A shares,
excluding sales charges, provided a total return of 0.14% compared to 14.40% for
the Morgan Stanley Capital International All Countries Far East Free ex-Japan
Index (the "MSCI"), a performance measurement of Far East markets excluding
Japan.
PORTFOLIO SPECIFICS: The overweight positions in technology issues performed
well until late March as the Nasdaq Index fell significantly. Investors were
concerned about the increasingly high valuation of tech-related counters and
began switching back into "old economy" stocks. Looking ahead, we will increase
exposure to Singapore (valuation improved favorably) and Korea (government
measures averted potential financial systemic risk). We will reduce our
overweight in Taiwan in the absence of fresh catalyst. We are cautious on Hong
Kong based on valuation and interest rate outlook. However, we are turning
bullish on China and will look for value stocks. In terms of stock selection, we
started to look at banks and financials in anticipation of peaking interest
rates in Asia.
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<PAGE>
MARKET OUTLOOK: The domestic fundamental within Asia remain positive with strong
economic recovery, rising domestic demand, healthy earnings growth and
reasonable market valuations. On the other hand, we are wary that investors have
recently become a little complacent about interest rates and that global equity
markets can therefore still be negatively surprised by strong US economic data.
If the correction happens, Asian exchanges may take a big hit. Once there are
clearer signals that interest rates are peaking and soft landing is being
achieved, we will turn more constructive on Asian equities with a
basis/preference for the high growth economies/markets.
<TABLE>
<CAPTION>
9/1/95 6/96 6/97 6/98 6/99 6/30/00
------ ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Pilgrim Asia-Pacific Equity Fund
Class A With Sales Charge $10,000 $ 9,780 $10,345 $ 4,221 $ 6,833 $ 6,843
Pilgrim Asia-Pacific Equity Fund
Class A Without Sales Charge 10,000 10,376 10,976 4,479 7,250 7,260
MSCI Far East Free Ex-Japan Index 10,000 11,382 14,501 18,157 18,565 21,238
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED JUNE 30, 2000
SINCE INCEPTION
1 YEAR 3 YEAR 9/1/95
------ ------ ------
Including Sales Charge:
Class A(1) -5.62% -14.41% -7.54%
Class B(2) -5.71% -14.53% -7.56%
Class M(3) -3.96% -14.47% -7.65%
Excluding Sales Charge:
Class A 0.14% -12.87% -6.40%
Class B -0.71% -13.66% -7.17%
Class M -0.42% -13.45% -6.97%
MSCI Far East Free Ex-Japan Index 14.40% 13.50% 16.86%
Based on a $10,000 initial investment, the graph and table above illustrate the
total return of Pilgrim Asia-Pacific Equity Fund against the MSCI Far East
Ex-Japan Index. The index has an inherent performance advantage over the Fund
since it has no cash in its portfolio, imposes no sales charge 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 the maximum sales
load.
Total returns reflect the fact that the Investment Adviser has contractually
agreed to waive or defer its management fee and to pay other operating expenses
otherwise payable by the Fund, subject to possible later reimbursement during a
three-year period. Total returns would have been lower had there been no
deferral to the Fund.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS LETTER CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
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<PAGE>
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 5.75%
(2) Reflects deduction of the Class B deferred sales charge of 5%, 3% and 2%,
respectively, for the 1 year, 3 year and since inception returns.
(3) Reflects deduction of the Class M maximum sales charge of 3.50%.
PRINCIPAL RISK FACTOR(S): International investing does pose special risks,
including currency fluctuation, economic and political risks not found in
investments that are solely domestic. There are also risks associated with
investing in a specialized regional fund. Currency devaluation in any one
country may have a significant effect on the entire region. Increased political
or social unrest in some or all Asian countries could cause further economic and
market uncertainty.
A-3
<PAGE>
APPENDIX B
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____ day of _____________, 2001, by and between Pilgrim Advisory Funds,
Inc., a Maryland corporation (the "Acquiring Company") with its principal place
of business at 7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258, on
behalf of its series, Pilgrim Asia-Pacific Equity Fund (the "Acquiring Fund"),
and Pilgrim SmallCap Asia Growth Fund, Inc., a Maryland corporation (the
"Acquired Company") with its principal place of business at 7337 E. Doubletree
Ranch Road, Scottsdale, Arizona 85258, on behalf of its sole series, Pilgrim
SmallCap Asia Growth Fund (the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for Class A and Class B
shares of common stock ($1.00 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 Directors of the Acquiring Company have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the Acquiring Fund and its shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not be
diluted as a result of this transaction; and
WHEREAS, the Directors of the Acquired Company, have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the Acquired Fund and its shareholders and that the
interests of the existing shareholders of the Acquired Fund would not be diluted
as a result of this transaction;
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 and Class
B 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
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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").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all assets and property, including, without limitation, all
cash, securities, commodities and futures interests and dividends or interests
receivable, that are owned by the Acquired Fund, and any deferred or prepaid
expenses shown as an asset on the books of the Acquired Fund on the closing date
provided for in paragraph 3.1 (the "Closing Date") (collectively, "Assets").
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund shall
also assume all of the liabilities of the Acquired Fund, whether accrued or
contingent, known or unknown, existing at the Valuation Date (collectively,
"Liabilities"). On or as soon as practicable prior to the Closing Date, the
Acquired Fund will declare and pay to its shareholders of record one or more
dividends and/or other distributions so that it will have distributed
substantially all (and in no event less than 98%) of its investment company
taxable income (computed without regard to any deduction for dividends paid) and
realized net capital gain, if any, for the current taxable year through the
Closing Date.
1.4. Immediately after the transfer of assets provided for in paragraph
1.1, the Acquired Fund will distribute to the Acquired Fund's shareholders of
record with respect to each class of its shares, determined as of immediately
after the close of business on the Closing Date (the "Acquired Fund
Shareholders"), on a pro rata basis within that class, the Acquiring Fund Shares
of the same class received by the Acquired Fund pursuant to paragraph 1.1, and
will completely liquidate. Such distribution and liquidation will be
accomplished, with respect to each class of the Acquired Fund's shares, by the
transfer of the Acquiring Fund Shares then credited to the account of the
Acquired Fund on the books of the Acquiring Fund to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund Shareholders.
The aggregate net asset value of Class A and Class B Acquiring Fund Shares to be
so credited to Class A and Class B 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 and Class B 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 and Class B Acquiring Fund Shares in
connection with such exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent.
1.6. Any reporting responsibility of the Acquired Fund including, but not
limited to, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
2. VALUATION
2.1. The value of the Assets shall be the value computed as of immediately
after the close of business of the New York Stock Exchange and after the
declaration of any dividends on the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures in the
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<PAGE>
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 Directors.
2.2. The net asset value of a Class A and Class B Acquiring Fund Share
shall be the net asset value per share computed with respect to that class as
the Valuation Date, using the valuation procedures set forth in the Acquiring
Fund's then-current prospectus and statement of additional information with
respect to the Acquiring Fund, and valuation procedures established by the
Acquiring Fund's Board of Directors.
2.3. The number of the Class A and Class B 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 and Class B shares of the Acquired
Fund, as the case may be, determined using the same valuation procedures
referred to in paragraph 2.1, by the net asset value of an Acquiring Fund Share,
determined in accordance with paragraph 2.2.
2.4. All computations of value shall be made by the Acquired Fund's
designated record keeping agent and shall be subject to confirmation by the
Acquiring Fund's record keeping agent and by each Fund's respective independent
accountants.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be _____ ___, 2001, or such other date as the
parties may agree to in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of immediately after the close of
business on the Closing Date unless otherwise agreed to by the parties. The
close of business on the Closing Date shall be as of 4:00 p.m., Eastern Time.
The Closing shall be held at the offices of the Acquiring Fund or at such other
time and/or place as the parties may agree.
3.2. The Acquired Fund shall direct 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) the Assets shall have been
delivered in proper form to the Acquiring Fund within two business days prior to
or on the Closing Date, and (ii) all necessary taxes in connection with the
delivery of the Assets, including all applicable federal and state stock
transfer stamps, if any, have been paid or provision for payment has been made.
The Acquired Fund's portfolio securities represented by a certificate or other
written instrument shall be presented by the Acquired Fund Custodian to the
custodian for the Acquiring Fund for examination no later than five business
days preceding the Closing Date, and shall be transferred and delivered by the
Acquired Fund as of the Closing Date for the account of the Acquiring Fund duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof. The Acquired Fund's portfolio securities and instruments
deposited with a securities depository, as defined in Rule 17f-4 under the
Investment Company Act of 1940, as amended (the "1940 Act"), shall direct the
Custodian to deliver as of the Closing Date by book entry in accordance with the
customary practices of such depositories and the custodian for Acquiring Fund.
The cash to be transferred by the Acquired Fund shall be delivered by wire
transfer of federal funds on the Closing Date.
3.3. The Acquired Fund shall direct DST Systems, Inc. (the "Transfer
Agent"), on behalf of the Acquired Fund, to deliver at the Closing a certificate
of an authorized officer stating that its records contain the names and
addresses of the Acquired Fund Shareholders and the number and percentage
ownership of outstanding Class A and Class B 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
B-3
<PAGE>
credited to the Acquired Fund's account on the books of the Acquiring Fund. At
the Closing each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request.
3.4. In the event that on the Valuation Date (a) the New York Stock
Exchange or another primary trading market for portfolio securities of the
Acquiring Fund or the Acquired Fund shall be closed to trading or trading
thereupon shall be restricted, or (b) trading or the reporting of trading on
such Exchange or elsewhere shall be disrupted so that, in the judgment of the
Board of Directors of the Acquired Fund or the Board of Directors 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 Company, the Acquired Company
on behalf of the Acquired Fund represents and warrants to the Acquiring Company
as follows:
(a) The Acquired Fund is duly organized as a series of the Acquired
Company, which is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland with power under the Acquired
Company's Articles of Incorporation to own all of its properties and assets and
to carry on its business as it is now being conducted;
(b) The Acquired Company is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act, and the registration of
shares of the Acquired Fund under the Securities Act of 1933, as amended ("1933
Act"), is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act")
and the 1940 Act and such as may be required by state securities laws;
(d) The current prospectus and statement of additional information of the
Acquired Fund and each prospectus and statement of additional information of the
Acquired Fund used during the three years previous to the date of this Agreement
conforms or conformed at the time of its use in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and does not or did not at the time of
its use include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading;
(e) On the Closing Date, the Acquired Fund will have good and marketable
title to the Assets and full right, power, and authority to sell, assign,
transfer and deliver such Assets hereunder free of any liens or other
encumbrances, and upon delivery and payment for such Assets, the Acquiring Fund
will acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under the
1933 Act, other than as disclosed to the Acquiring Fund;
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<PAGE>
(f) The Acquired Fund is not engaged currently, and the execution, delivery
and performance of this Agreement will not result, in (i) a material violation
of the Acquired Company's Articles of Incorporation or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
the Acquired Company on behalf of the Acquired Fund is a party or by which it is
bound, or (ii) the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease, judgment
or decree to which the Acquired Company on behalf of the Acquired Fund is a
party or by which it is bound;
(g) All material contracts or other commitments of the Acquired Fund (other
than this Agreement and certain investment contracts, including options, futures
and forward contracts) will terminate without liability to the Acquired Fund on
or prior to the Closing Date;
(h) Except as otherwise disclosed in writing to and accepted by the
Acquiring Company on behalf of the Acquiring Fund, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or, to its knowledge, threatened against
the Acquired Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect its financial condition or the
conduct of its business. The Acquired Company on behalf of the Acquired Fund
knows of no facts which might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially and
adversely affects 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
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<PAGE>
distributed all of its investment company taxable income and net capital gain
(as defined in the Code) that has accrued through the Closing Date, and before
the Closing Date will have declared dividends sufficient to distribute all of
its investment company taxable income and net capital gain for the period ending
on the Closing Date;
(m) All issued and outstanding shares of the Acquired Fund are, and on the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable by the Acquired Company and have been offered and sold in every
state and the District of Columbia in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities laws.
All of the issued and outstanding shares of the Acquired Fund will, at the time
of Closing, be held by the persons and in the amounts set forth in the records
of the Transfer Agent, on behalf of the Acquired Fund, as provided in paragraph
3.3. The Acquired Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of the shares of the Acquired Fund, nor
is there outstanding any security convertible into any of the Acquired Fund
shares;
(n) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action, if any,
on the part of the Directors of the Acquired Company on behalf of the Acquired
Fund, and, subject to the approval of the shareholders of the Acquired Fund,
this Agreement will constitute a valid and binding obligation of the Acquired
Fund, enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(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
statement executed by an officer of the Acquiring Company on behalf of the
Acquiring Fund, the Acquiring Company on behalf of the Acquiring Fund represents
and warrants to the Acquired Company as follows:
(a) The Acquiring Fund is duly organized as a series of the Acquiring
Company, which is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland with power under the Acquiring
Company's Articles of Incorporation to own all of its properties and assets and
to carry on its business as it is now being conducted;
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(b) The Acquiring Company is a registered investment company classified as
a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act and the registration of
shares of the Acquiring Fund under the 1933 Act, is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required by state
securities laws;
(d) The current prospectus and statement of additional information of the
Acquiring Fund and each prospectus and statement of additional information of
the Acquiring Fund used during the three years previous to the date of this
Agreement conforms or conformed at the time of its use in all material respects
to the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the Commission thereunder and does not or did not at the time
of its use include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading;
(e) On the Closing Date, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets, free of any liens of other encumbrances,
except those liens or encumbrances as to which the Acquired Fund has received
notice and necessary documentation at or prior to the Closing;
(f) The Acquiring Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in (i) a material
violation of the Acquiring Company's Articles of Incorporation or By-Laws or of
any agreement, indenture, instrument, contract, lease or other undertaking to
which the Acquiring Company on behalf of the Acquiring Fund is a party or by
which it is bound, or (ii) the acceleration of any obligation, or the imposition
of any penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Acquiring Company 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 Company on behalf of the Acquired Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or, to its knowledge, threatened against the Acquiring Company
on behalf of the Acquiring Fund or any of the Acquiring Fund's properties or
assets that, if adversely determined, would materially and adversely affect the
Acquiring Fund's financial condition or the conduct of the Acquiring Fund's
business. The Acquiring Company 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 its
business or its ability to consummate the transactions herein contemplated;
(h) The Statement of Assets and Liabilities, Statements of Operations and
Changes in Net Assets and 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
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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
including the Closing Date), the Acquiring Fund has met (or will meet) the
requirements of Subchapter M of the Code for qualification as a regulated
investment company has been eligible to and has computed (or will compute) its
federal income tax under Section 852 of the Code, and has distributed all of its
investment company taxable income and net capital gain (as defined in the Code)
for periods ending prior to the Closing Date;
(l) All issued and outstanding Acquiring Fund Shares are, and on the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable and have been offered and sold in every state and the District of
Columbia in compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws. The Acquiring Fund does
not have outstanding any options, warrants or other rights to subscribe for or
purchase any Acquiring Fund Shares, nor is there outstanding any security
convertible into any Acquiring Fund Shares;
(m) The execution, delivery and performance of this Agreement will have
been fully authorized prior to the Closing Date by all necessary action, if any,
on the part of the Directors of the Acquiring Company on behalf of the Acquiring
Fund and this Agreement will constitute a valid and binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights and to general equity
principles;
(n) The Class A and Class B Acquiring Fund Shares to be issued and
delivered to the Acquired Fund, for the account of the Acquired Fund
Shareholders, pursuant to the terms of this Agreement, will on the Closing Date
have been duly authorized and, when so issued and delivered, will be duly and
validly issued Acquiring Fund Shares, and will be fully paid and non-assessable;
(o) The information to be furnished by the Acquiring Company on behalf of
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,
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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 and Class B Acquiring
Fund Shares to be issued hereunder are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms of this
Agreement.
5.4. The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares.
5.5. Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.6. The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement referred to in paragraph 4.1(p), all to
be included in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the 1934 Act and the
1940 Act, in connection with the meeting of the shareholders of the Acquired
Fund to consider approval of this Agreement and the transactions contemplated
herein.
5.7. As soon as is reasonably practicable after the Closing, the Acquired
Fund will make a liquidating distribution to its shareholders consisting of the
Class A and Class B 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 Company on behalf of the Acquired Fund covenants that it
will, from time to time, as and when reasonably requested by the Acquiring Fund,
execute and deliver or cause to be executed and delivered all such assignments
and other instruments, and will take or cause to be taken such further action as
the Acquiring Company on behalf of the Acquiring Fund may reasonably deem
necessary or desirable in order to vest in and confirm (a) the Acquired
Company's on behalf of the Acquired Fund's title to and possession of the
Acquiring Fund's Shares to be delivered hereunder, and (b) the Acquiring
Company's on behalf of the Acquiring Fund's title to and possession of all the
assets, and to carry out the intent and purpose of this Agreement.
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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 Company on behalf of the Acquired Fund to
consummate the transactions provided for herein shall be subject, at the
Acquired Company's election, to the performance by the Acquiring Company 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 Acquiring Company 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 Acquiring Company shall have delivered to the Acquired Company 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 Company and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquiring Company 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 Company shall
reasonably request;
6.3. The Acquiring Company on behalf of the Acquiring Fund shall have
performed all of the covenants and complied with all of the provisions required
by this Agreement to be performed or complied with by the Acquiring Company 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 Acquiring Company on behalf of the Acquiring Fund to
complete the transactions provided for herein shall be subject, at the Acquiring
Company's election, to the performance by the Acquired Company on behalf of the
Acquired Fund of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
7.1. All representations and warranties of the Acquired Company on behalf
of the Acquired Fund contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be affected
by the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date;
7.2. The Acquired Company on behalf of the Acquired Fund shall have
delivered to the Acquiring Fund a statement of the Acquired Fund's assets and
liabilities, as of the Closing Date, certified by the Treasurer of the Acquired
Company;
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7.3. The Acquired Company shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquiring Company and dated as of the Closing Date, to the
effect that the representations and warranties of the Acquired Company on behalf
of the Acquired Fund made in this Agreement are true and correct at and as of
the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Acquiring
Company shall reasonably request;
7.4. The Acquired Company on behalf of the Acquired Fund shall have
performed all of the covenants and complied with all of the provisions required
by this Agreement to be performed or complied with by the Acquired Company on
behalf of the Acquired Fund on or before the Closing Date;
7.5. The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each Class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1; and
7.6. The Acquired Fund shall have declared and paid a distribution or
distributions prior to the Closing that, together with all previous
distributions, shall have the effect of distributing to its shareholders (i) all
of its investment company taxable income and all of its net realized capital
gains, if any, for the period from the close of its last fiscal year to 4:00
p.m. Eastern time on the Closing; and (ii) any undistributed investment company
taxable income and net realized capital gains from any period to the extent not
otherwise already distributed.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below have not been satisfied on or
before the Closing Date with respect to the Acquired Fund or the Acquiring
Company on behalf of the Acquiring Fund, the other party to this Agreement
shall, at its option, not be required to consummate the transactions
contemplated by this Agreement:
8.1. The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Acquired Company's
Articles of Incorporation, By-Laws, applicable Maryland law and the 1940 Act,
and certified copies of the resolutions evidencing such approval shall have been
delivered to the Acquiring Company. Notwithstanding anything herein to the
contrary, neither the Acquiring Company nor the Acquired Company may waive the
conditions set forth in this paragraph 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or, to its knowledge, threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain damages or other relief
in connection with, this Agreement or the transactions contemplated herein;
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Company or the Acquired Company 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;
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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 Company and the Acquiring Company substantially to the effect that,
based upon certain facts, assumptions, and representations, the transaction
contemplated by this Agreement shall constitute a tax-free reorganization for
Federal income tax purposes. The delivery of such opinion is conditioned upon
receipt by Dechert of representations it shall request of the Acquiring Company
and the Acquired Company. Notwithstanding anything herein to the contrary,
neither the Acquiring Company nor the Acquired Company may waive the condition
set forth in this paragraph 8.5.
9. BROKERAGE FEES AND EXPENSES
9.1. The Acquired Company on behalf of the Acquired Fund and the Acquiring
Company on behalf of the Acquiring Fund represent and warrant to each other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
9.2. The expenses relating to the proposed Reorganization will be shared so
that (1) half of such costs are borne by the investment adviser to the Acquired
and Acquiring Funds, and (2) half are borne by the Acquired and Acquiring Funds
and will be paid by the Acquired Fund and Acquiring Fund pro rata based upon the
relative net assets of the Acquired Fund and the Acquiring Fund as of the close
of business on the record date for determining the shareholders of the Acquired
Fund entitled to vote on the Reorganization. The costs of the Reorganization
shall include, but not be limited to, costs associated with obtaining any
necessary order of exemption from the 1940 Act, preparation of the Registration
Statement, printing and distributing the Acquiring Fund's prospectus and the
Acquired Fund's proxy materials, legal fees, accounting fees, securities
registration fees, and expenses of holding shareholders' meetings.
Notwithstanding any of the foregoing, expenses will in any event be paid by the
party directly incurring such expenses if and to the extent that the payment by
another person of such expenses would result in the disqualification of such
party as a "regulated investment company" within the meaning of Section 851 of
the Code.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. The Acquiring Company and the Acquired Company agree that neither
party has made any representation, warranty or covenant not set forth herein and
that this Agreement constitutes the entire agreement between the parties.
10.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing shall survive the Closing.
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11. TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
and abandoned by resolution of the Board of Directors of the Acquired Fund or
the Board of Directors of the Acquiring Company at any time prior to the Closing
Date, if circumstances should develop that, in the opinion of either 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
Company and the Acquiring Company; provided, however, that following the meeting
of the shareholders of the Acquired Fund called by the Acquired Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Class A and Class B
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
Acquiring Company or to the Acquired Company, 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 Maryland 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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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 ADVISORY FUNDS, INC. on behalf of its
PILGRIM ASIA-PACIFIC EQUITY series
By:
-------------------------------- ----------------------------------------
SECRETARY Title:
--------------------------------------
Attest: PILGRIM SMALLCAP ASIA GROWTH FUND, INC.
on behalf of its sole series
By:
-------------------------------- ----------------------------------------
SECRETARY Title:
--------------------------------------
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APPENDIX C
ADDITIONAL INFORMATION REGARDING PILGRIM ASIA-PACIFIC EQUITY FUND
SHAREHOLDER GUIDE
PIlGRIM PURCHASE OPTIONS(TM)
This Proxy Statement/Prospectus relates to two separate classes of the
Fund, Class A and Class B, each of which represents an identical interest in the
Fund's investment portfolio, but are offered with different sales charges and
distribution fee (Rule 12b-1) arrangements. As described below and elsewhere in
this Proxy Statement/Prospectus, the contingent deferred sales load structure
and conversion characteristics of the Fund shares that will be issued to you in
the Reorganization will be the same as those that apply to SmallCap Asia Growth
Fund shares held by you immediately prior to the Reorganization, and the period
that you held shares of SmallCap Asia Growth Fund will be included in the
holding period of the Fund for purposes of calculating contingent deferred sales
charges and determining conversion rights. Purchases of the shares of the Fund
after the Reorganization will be subject to the sales load structure and
conversion rights discussed below.
The sales charges and fees for each class of shares of the Fund are shown
and contrasted in the chart below.
CLASS A CLASS B
------- -------
Maximum Initial Sales Charge on Purchases 5.75%(1) None
Contingent Deferred Sales Charge ("CDSC") None(2) 5.00%(3)
Annual Service and Distribution (12b-1) Fees (4) 0.25% 1.00%
Maximum Purchase Unlimited $250,000
Automatic Conversion to Class A N/A 8 Years(5)
----------
(1) Reduced for purchases of $50,000 and over.
(2) For investments of $1 million or more, a CDSC of no more than 1% may be
assessed on redemptions of shares. See "Class A Shares: Initial Sales
Charge Alternative" in this Appendix 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) Annual asset-based distribution charge.
(5) Class B shares of the Fund issued to shareholders of SmallCap Asia Growth
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 SmallCap
Asia Growth Fund.
The relative impact of the initial sales charges and ongoing annual
expenses will depend on the length of time a share is held. Orders for Class B
shares in excess of $250,000 will be accepted as orders for Class A shares or
declined.
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CLASS A SHARES: INITIAL SALES CHARGE ALTERNATIVE. Class A shares of the
Fund are sold at the net asset value ("NAV") per share in effect plus a sales
charge as described in the following table. For waivers or reductions of the
Class A shares sales charges, see "Special Purchases without a Sales Charge" and
"Reduced Sales Charges" below.
AS A % OF THE
YOUR INVESTMENT OFFERING PRICE AS A %
--------------- -------------- ------
Less than $50,000 5.75% 6.10%
$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 SmallCap Asia Growth Fund that were subject to
a CDSC at the time of the Reorganization, will be subject to a CDSC of up to 1%
from the date of purchase of the original shares of SmallCap Asia Growth Fund.
REDUCED SALES CHARGES. An investor may immediately qualify for a reduced
sales charge on a purchase of Class A shares of the Fund or other open-end funds
in the Pilgrim funds which offer Class A shares, or shares with front-end sales
charges ("Participating Funds") by completing the Letter of Intent section of an
Application to purchase Fund shares. Executing the Letter of Intent expresses an
intention to invest during the next 13 months a specified amount, which, if made
at one time, would qualify for a reduced sales charge. An amount equal to the
Letter 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) ("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.
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.
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CLASS B SHARES: DEFERRED SALES CHARGE ALTERNATIVE. Class B shares are
offered at their NAV per share without any initial sales charge. Class B shares
that are redeemed within six years of purchase, however, will be subject to a
CDSC as described in the table that follows. Class B shares of the Fund are
subject to a distribution fee at an annual rate of 1.00% of the average daily
net assets of the Class, which is higher than the distribution fees of Class A
shares. The higher distribution fees mean a higher expense ratio, so Class B
shares pay correspondingly lower dividends and may have a lower NAV than Class A
shares. 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 SmallCap Asia Growth Fund
will convert to Class A shares eight years after the purchase of the original
shares of SmallCap Asia Growth Fund. For additional information on the CDSC and
the conversion of Class B, see the Fund's Statement of Additional Information.
WAIVERS OF CDSC. The CDSC will be waived in the following cases. In
determining whether a CDSC is applicable, it will be assumed that shares held in
the shareholder's account that are not subject to such charge are redeemed
first.
1) The CDSC will be waived in the case of redemption following the death or
permanent disability of a shareholder if made within one year of death or
initial determination of permanent disability. The waiver is available only for
those shares held at the time of death or initial determination of permanent
disability.
2) The CDSC also may be waived for Class B shares redeemed pursuant to a
Systematic Withdrawal Plan, up to a maximum of 12% per year of a shareholder's
account value based on the value of the account at the time the plan is
established and annually thereafter, provided all dividends and distributions
are reinvested and the total redemptions do not exceed 12% annually.
3) The CDSC also will be waived in the case of mandatory distributions from
a tax-deferred retirement plan or an IRA.
If you think you may be eligible for a CDSC waiver, contact the Shareholder
Servicing Agent at (800) 992-0180.
REINSTATEMENT PRIVILEGE. Class B shareholders who have redeemed their
shares in any open-end Pilgrim fund may reinvest some or all of the proceeds in
the same share Class within 90 days without a sales charge. Reinstated Class B
shares will retain their original cost and purchase date for purposes of the
C-3
<PAGE>
CDSC. This privilege can be used only once per calendar year. See the Statement
of Additional Information for the Fund for details or contact the Shareholder
Servicing Agent at (800) 992-0180 for more information.
RULE 12b-1 PLAN. The Fund has a distribution plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 applicable to each class of shares of
the Fund ("Rule 12b-1 Plan"). Under the Rule 12b-1 Plan, ING Pilgrim Securities,
Inc. (the "Distributor") may receive from the Fund an annual fee in connection
with the offering, sale and shareholder servicing of the Fund's Class A and
Class B 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% None
Class B 0.25% 0.75%
Fees paid under the Rule 12b-1 Plan may be used to cover the expenses of
the Distributor from the sale of Class A and Class B 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 Directors
who are not affiliated with ING Pilgrim Investments, Inc. Most Fund expenses are
allocated proportionately among all of the outstanding shares of that Fund.
However, the Rule 12b-1 Plan fees for each class of shares are charged
proportionately only to the outstanding shares of that class.
PURCHASING SHARES. The Fund reserves the right to liquidate sufficient
shares to recover annual Transfer Agent fees should the investor fail to
maintain his/her account value at a minimum of $1,000.00 ($250.00 for IRA's).
The minimum initial investment in the Fund is $1,000 ($250 for IRAs), and the
minimum for additional investment in the Fund is $100. The minimum initial
investment for a pre-authorized retirement plan is $100, plus monthly
investments of at least $100.
The Fund and the Distributor reserve the right to reject any purchase
order. Please note cash, travelers checks, third party checks, money orders and
checks drawn on non-U.S. banks (even if payment may be effected through a U.S.
bank) will not be accepted. ING Pilgrim Investments, Inc. reserves the right to
waive minimum investment amounts.
PRICE OF SHARES. When you buy shares, you pay the NAV plus any applicable
sales charge. When you sell shares, you receive the NAV minus any applicable
deferred sales charge. Exchange orders are effected at NAV.
DETERMINATION OF NET ASSET VALUE. The NAV of each class of the Fund's
shares is determined daily as of the close of regular trading on the New York
Stock Exchange (usually at 4:00 p.m. New York City time) on each day that it is
open for business. The NAV of each class represents that class' pro rata share
of that Fund's net assets as adjusted for any class specific expenses (such as
fees under a Rule 12b-1 plan), and divided by that class' outstanding shares. In
C-4
<PAGE>
general, the value of the Fund's assets is based on actual or estimated market
value, with special provisions for assets not having readily available market
quotations, and short-term debt securities, and for situations where market
quotations are deemed reliable. 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 Directors. 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 - Kansas City ("SSB") acts as the custodian under these plans. For
further information, contact the Shareholder Servicing Agent at (800) 992-0180.
SSB currently receives a $12 custodian fee annually for the maintenance of such
accounts.
EXECUTION OF REQUESTS. Purchase and sale requests are executed at the next
NAV determined after the order is received in proper form by the Transfer Agent
or Distributor. A purchase order will be deemed to be in proper form when all of
the required steps set forth above under "Purchase of Shares" have been
completed. If you purchase by wire, however, the order will be deemed to be in
proper form after the telephone notification and the federal funds wire have
been received. If you purchase by wire, you must submit an application form in a
timely fashion. If an order or payment by wire is received after the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern
Time), the shares will not be credited until the next business day.
You will receive a confirmation of each new transaction in your account,
which also will show you the number of shares of the Fund you own including the
number of shares being held in safekeeping by the Transfer Agent for your
account. You may rely on these confirmations in lieu of certificates as evidence
of your ownership. Certificates representing shares of the Fund will not be
issued unless you request them in writing.
TELEPHONE ORDERS. The Fund and its Transfer Agent will not be responsible
for the authenticity of phone instructions or losses, if any, resulting from
unauthorized shareholder transactions if they reasonably believe that such
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.
C-5
<PAGE>
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 unless you mark the box on the Account Application
that indicates that you do not wish to have the telephone exchange privilege.
SYSTEMATIC EXCHANGE PRIVILEGE. With an initial account balance of at least
$5,000 and subject to the information and limitations outlined above, you may
elect to have a specified dollar amount of shares systematically exchanged,
monthly, quarterly, semi-annually or annually (on or about the 10th of the
applicable month), from your account to an identically registered account in the
same class of any other open-end Pilgrim fund. This exchange privilege may be
modified at any time or terminated upon 60 days' written notice to shareholders.
SMALL ACCOUNTS. Due to the relatively high cost of handling small
investments, the Fund reserves the right upon 30 days' written notice to redeem,
at NAV, the shares of any shareholder whose account (except for IRAs) has a
value of less than $1,000, other than as a result of a decline in the NAV per
share.
HOW TO REDEEM SHARES
Shares of the Fund will be redeemed at the NAV (less any applicable CDSC
and/or federal income tax withholding) next determined after receipt of a
redemption request in good form on any day the New York Stock Exchange is open
for business.
SYSTEMATIC WITHDRAWAL PLAN. You may elect to have monthly, quarterly,
semi-annual or annual payments in any fixed amount of $100 or more made to
yourself, or to anyone else you properly designate, as long as the account has a
current value of at least $10,000. For additional information, contact the
Shareholder Servicing Agent at (800) 992-0180, or see the Fund's Statement of
Additional Information.
C-6
<PAGE>
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 Directors 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 Group N.V. (NYSE: ING) ("ING
Group"). ING Group is a global financial institution active in the field of
insurance, banking and asset management in more than 65 countries, with almost
100,000 employees.
SHAREHOLDER SERVICING AGENT. ING Pilgrim Group, Inc. serves as Shareholder
Servicing Agent for the Fund. The Shareholder Servicing Agent is responsible for
responding to written and telephonic inquiries from shareholders. The Fund pays
the Shareholder Servicing Agent a monthly fee on a per-contact basis, based upon
incoming and outgoing telephonic and written correspondence.
PORTFOLIO TRANSACTIONS. ING Pilgrim Investments will place orders to
execute securities transactions that are designed to implement the Fund's
investment objectives and policies. ING Pilgrim Investments will use its
reasonable efforts to place all purchase and sale transactions with brokers,
dealers and banks ("brokers") that provide "best execution" of these orders. In
placing purchase and sale transactions, ING Pilgrim Investments may consider
brokerage and research services provided by a broker to ING Pilgrim Investments
or its affiliates, and the Fund may pay a commission for effecting a securities
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.
C-7
<PAGE>
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 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 or B account in the Fund invested into a Pilgrim fund or ING fund
which offers the same Class of 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.
C-8
<PAGE>
FINANCIAL HIGHLIGHTS
The information in the table below has been audited by KPMG LLP, independent
auditors. Selected data for a share of beneficial interest outstanding
throughout each period.
<TABLE>
<CAPTION>
Class A
--------------------------------------------
Sept. 1,
1995 to
Year Ended June 30, June 30,
2000 1999 1998 1997 1996(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 7.22 4.46 10.93 10.35 10.00
Income from investment operations:
Net investment income (loss) $ (0.05) -- 0.03 0.02 0.03
Net realized and unrealized gain
(loss) on investments $ 0.06 2.76 (6.50) 0.58 0.34
Total from investment operations $ 0.01 2.76 (6.47) 0.60 0.37
Less distributions from:
Net investment income $ -- -- -- -- --
In excess of net investment income $ -- -- -- -- 0.02
Tax return of capital $ -- -- -- 0.02 --
Net asset value, end of period $ 7.23 7.22 4.46 10.93 10.35
Total Return(2) % 0.14 61.88 (59.29) 5.78 3.76
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 11,726 14,417 11,796 32,485 18,371
Ratios to average net assets:
Net expenses after expense
reimbursement(3)(4) % 2.11 2.00 2.00 2.00 2.00
Gross expenses prior to expense
reimbursement(3) % 2.55 2.98 2.80 2.54 3.47
Net investment income (loss) after
expense reimbursement(3)(4) % (0.56) 0.01 0.38 0.00 0.33
Portfolio turnover rate % 138 111 81 38 15
Class B
--------------------------------------------
Sept. 1,
1995 to
Year Ended June 30, June 30,
2000 1999 1998 1997 1996(1)
---- ---- ---- ---- -------
Per Share Operating Performance:
Net asset value, beginning of period $ 7.02 4.37 10.83 10.31 10.00
Income from investment operations:
Net investment income (loss) $ (0.11) (0.04) (0.03) (0.07) (0.01)
Net realized and unrealized gain
(loss) on investments $ 0.06 2.69 (6.43) 0.59 0.32
Total from investment operations $ (0.05) 2.65 (6.46) 0.52 0.31
Less distributions from:
Net investment income $ -- -- -- -- --
In excess of net investment income $ -- -- -- -- --
Tax return of capital $ -- -- -- -- --
Net asset value, end of period $ 6.97 7.02 4.37 10.83 10.31
Total Return(2) % (0.71) 60.64 (59.65) 5.04 3.19
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 12,228 12,959 9,084 30,169 17,789
Ratios to average net assets:
Net expenses after expense
reimbursement(3)(4) % 2.86 2.75 2.75 2.75 2.75
Gross expenses prior to expense
reimbursement(3) % 3.30 3.73 3.55 3.29 4.10
Net investment income (loss) after
expense reimbursement(3)(4) % (1.31) (0.74) (0.39) (0.79) (0.38)
Portfolio turnover rate % 138 111 81 38 15
Class M
---------------------------------------------------
Sept. 1,
Year Ended June 30, 1995 to
2000 1999 1998 1997 June 30, 1996(1)
---- ---- ---- ---- ----------------
Per Share Operating Performance:
Net asset value, beginning of period $ 7.07 4.40 10.86 10.32 10.00
Income from investment operations:
Net investment income (loss) $ (0.11) (0.02) -- (0.05) --
Net realized and unrealized gain
(loss) on investments $ 0.08 2.69 (6.46) 0.59 0.33
Total from investment operations $ (0.03) 2.67 (6.46) 0.54 0.33
Less distributions from:
Net investment income $ -- -- -- -- --
In excess of net investment income $ -- -- -- -- 0.01
Tax return of capital $ -- -- -- -- --
Net asset value, end of period $ 7.04 7.07 4.40 10.86 10.32
Total Return(2) % (0.42) 60.68 (59.48) 5.26 3.32
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 3,749 5,184 4,265 11,155 6,476
Ratios to average net assets:
Net expenses after expense
reimbursement(3)(4) % 2.61 2.50 2.50 2.50 2.50
Gross expenses prior to expense
reimbursement(3) % 3.05 3.48 3.30 3.04 3.88
Net investment income (loss) after
expense reimbursement(3)(4) % (1.06) (0.49) (0.07) (0.55) (0.16)
Portfolio turnover rate % 138 111 81 38 15
</TABLE>
----------
(1) The Fund commenced operations on September 1, 1995.
(2) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return information for less than one year is not
annualized.
(3) Annualized for periods less than one year.
(4) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
C-9
<PAGE>
APPENDIX D
The following is a list of the ING Funds, which are managed by an affiliate
of ING Pilgrim Investments, and Pilgrim Funds, and the classes of shares of each
Fund that are expected to be offered at or shortly after the Reorganization:
FUND CLASSES OFFERED
---- ---------------
ING FUNDS
U.S. EQUITY
Internet Fund A, B and C
Tax Efficient Equity Fund A, B and C
GLOBAL/INTERNATIONAL EQUITY
European Equity Fund A, B and C
Global Communications Fund A, B and C
Global Information Technology Fund A, B and C
FIXED INCOME
High Yield Bond Fund A, B and C
Intermediate Bond Fund A, B and C
Money Market Fund A, B, C and I
National Tax-Exempt Bond Fund A, B and C
PILGRIM FUNDS
U.S. EQUITY
Balanced Fund A, B, C, Q and T
Bank and Thrift Fund A and B
Convertible Fund A, B, C and Q
Corporate Leaders Trust Fund A
Growth and Income Fund A, B, C and Q
Growth + Value Fund A, B, C and Q
Growth Opportunities Fund A, B, C, Q, I and T
LargeCap Growth Fund A, B, C and Q
MagnaCap Fund A, B, C, Q and M
MidCap Growth Fund A, B, C and Q
MidCap Opportunities Fund A, B, C, Q and I
Research Enhanced Index Fund A, B, C, Q and I
SmallCap Growth Fund A, B, C, Q
SmallCap Opportunities Fund A, B, C, Q, I and T
GLOBAL/INTERNATIONAL EQUITY
Asia-Pacific Equity Fund A, B and M
Emerging Countries Fund A, B, C and Q
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
Asia-Pacific Equity Fund:
<TABLE>
<CAPTION>
PERCENTAGE
CLASS AND TYPE PERCENTAGE PERCENTAGE OF FUND AFTER
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND REORGANIZATION
---- ------- ------------ -------- ------- --------------
<S> <C> <C> <C> <C> <C>
Pilgrim Asia-Pacific G Appel Investors Class A
Equity Fund 150 Great Neck Rd., Record Holder 9.48% 4.20% ______%
Ste. 301
Great Neck, NY 11021
</TABLE>
As of November 1, 2000, no person owned beneficially or of record 5% or
more of the outstanding shares of the specified Class of SmallCap Asia Growth
Fund.
E-1
<PAGE>
PART B
PILGRIM INVESTMENT FUNDS, INC.
--------------------------------------------------------------------------------
Statement of Additional Information
___________, 2001
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Acquisition of the Assets and Liabilities of By and in Exchange for Shares of
Pilgrim SmallCap Asia Growth Fund Pilgrim Asia-Pacific Equity Fund
7337 East Doubletree Ranch Road (a series of Pilgrim Advisory Funds, Inc.)
Scottsdale, Arizona 85258 7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258
</TABLE>
This Statement of Additional Information is available to the Shareholders
of Pilgrim SmallCap Asia Growth Fund in connection with a proposed transaction
whereby all of the assets and liabilities of Pilgrim SmallCap Asia Growth Fund
will be transferred to Pilgrim Asia-Pacific Equity Fund, a series of Pilgrim
Advisory Funds, Inc., in exchange for shares of Pilgrim Asia-Pacific Equity
Fund.
This Statement of Additional Information of the Pilgrim Advisory Funds,
Inc. consists of this cover page and the following documents, each of which was
filed electronically with the Securities and Exchange Commission and is
incorporated by reference herein:
1. The Statement of Additional Information for Pilgrim Asia-Pacific Equity
Fund dated November 1, 2000, as filed on November 1, 2000, and the
Statement of Additional Information for Pilgrim SmallCap Asia Growth Fund
dated November 1, 2000, as filed on November 1, 2000.
2. The Financial Statements of Pilgrim Asia-Pacific Equity Fund are included
in the Annual Report of Pilgrim Advisory Funds, Inc. dated June 30, 2000,
as filed on September 7, 2000.
3. The Financial Statements of Pilgrim SmallCap Asia Growth Fund are included
in the Annual Report of Pilgrim SmallCap Asia Growth Fund, Inc. dated
December 31, 1999, as filed on February 28, 2000.
4. The Financial Statement of Pilgrim SmallCap Asia Growth Fund are included
in the Semi-Annual Report of Pilgrim SmallCap Asia Growth Fund, Inc. dated
June 30, 2000, as filed on August 31, 2000.
This Statement of Additional Information is not a Prospectus. A Proxy
Statement/Prospectus dated ________ ___, 2001, relating to the reorganization of
Pilgrim SmallCap Asia Growth Fund may be obtained, without charge, by writing to
ING Pilgrim at 7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258 or
calling (800) 992-0180. This Statement of Additional Information should be read
in conjunction with the Proxy Statement/Prospectus.
1
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
Shown below are financial statements for each Fund and pro forma financial
statements for the combined Fund, assuming the reorganization is consummated, as
of June 30, 2000. The first table presents Statements of Assets and Liabilities
(unaudited) for each Fund and pro forma figures for the combined Fund. The
second table presents Statements of Operations (unaudited) for each Fund and pro
forma figures for the combined Fund. The third table presents Portfolio of
Investments (unaudited) for each Fund and pro forma figures for the combined
Fund. The tables are followed by the Notes to the Pro Forma Financial Statements
(unaudited).
STATEMENTS OF ASSETS AND LIABILITIES AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
ASIA SMALLCAP PRO FORMA PRO FORMA
PACIFIC ASIA GROWTH ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities at market value* $ 27,574,363 $ 10,266,792 $ 37,841,155
Foreign currency** -- 84,863 84,863
Cash -- 674,904 674,904
Receivables:
Fund shares sold 280,549 182,500 463,049
Dividends and interest 39,207 29,024 68,231
Investment securities sold 288,184 167,246 455,430
Due from affiliate -- 83,518 83,518
Prepaid expenses 15,814 480 16,294
------------ ------------ ------------ ------------
Total Assets 28,198,117 11,489,327 -- 39,687,444
------------ ------------ ------------ ------------
LIABILITIES:
Payable for fund shares redeemed 134,352 16,055 150,407
Payable to affiliate 26,659 -- 26,659
Payable to custodian 219,881 -- 219,881
Other accrued expenses and liabilities 114,845 127,453 242,298
------------ ------------ ------------ ------------
Total Liabilities 495,737 143,508 -- 639,245
------------ ------------ ------------ ------------
NET ASSETS $ 27,702,380 $ 11,345,819 $ -- $ 39,048,199
============ ============ ============ ============
NET ASSETS CONSIST OF:
Paid-in capital $ 48,397,703 $ 20,141,769 $ 68,539,472
Accumulated net investment loss (74,696) (74,696)
Accumulated net realized gain (loss) on investments (23,718,357) (9,817,134) (33,535,491)
Net unrealized appreciation (depreciation) of investments 3,023,034 1,095,880 4,118,914
------------ ------------ ------------ ------------
Net Assets $ 27,702,380 $ 11,345,819 $ -- $ 39,048,199
============ ============ ============ ============
CLASS A:
Net Assets $ 11,725,688 11,345,819 $ 23,071,507
Shares outstanding 1,621,404 1,417,153 152,523 (A) 3,191,080
Net asset value and redemption price per share $ 7.23 $ 8.01 $ 7.23
Maximum offering price per share $ 7.67 $ 8.01 $ 7.67
CLASS B:
Net Assets $ 12,227,613 N/A $ 12,227,613
Shares outstanding 1,753,705 N/A 1,753,705
Net asset value and redemption price per share $ 6.97 N/A $ 6.97
Maximum offering price per share $ 6.97 N/A $ 6.97
CLASS M:
Net Assets $ 3,749,079 N/A $ 3,749,079
Shares outstanding 532,713 N/A 532,713
Net asset value and redemption price per share $ 7.04 N/A $ 7.04
Maximum offering price per share $ 7.30 N/A $ 7.30
*Cost of securities $ 24,528,219 $ 9,170,853 $ 33,699,072
**Cost of foreign currency $ -- $ 84,918 $ 84,918
</TABLE>
----------
(A) Reflects new shares issued, net of retired shares of the SmallCap Asia Fund.
See Accompanying Notes to Unaudited Proforma Financial Statements
2
<PAGE>
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
ASIA SMALLCAP PRO FORMA PRO FORMA
PACIFIC ASIA GROWTH ADJUSTMENTS COMBINED
------------ ------------ ------------ -----------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
30-JUN 30-JUN 30-JUN 30-JUN
2000 2000 2000 2000
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends, net of foreign taxes $ 429,859 $ 122,968 $ 552,827
Interest 74,595 17,757 92,352
------------ ------------ ------------ -----------
Total investment income 504,454 140,725 -- 645,179
------------ ------------ ------------ -----------
EXPENSES:
Investment management fees 413,123 163,677 576,800
Distribution expenses --
Class A 34,682 -- 33,069 (A) 67,751
Class B 138,885 -- 138,885
Class M 39,665 -- 39,665
Transfer agent and registrar fees 119,865 47,791 167,656
Shareholder reporting 11,979 21,487 33,466
Registration and filing fees 36,084 16,764 (8,382) (B) 44,466
Recordkeeping and pricing fees 5,738 -- 3,536 (B) 9,274
Professional fees 4,847 39,285 (31,428) (B) 12,704
Custodian fees 126,026 42,510 168,536
Shareholder servicing fee 6,210 -- 6,210
Directors' fees 2,183 105,861 (100,000) (B) 8,044
Insurance 2,068 -- 2,068
Miscellaneous 2,043 13,474 15,517
Interest and credit facility fee 4,822 -- 4,822
Accounting expenses -- 9,341 (9,341) (C) --
Computer processing fees -- 10,703 (10,703) (C) --
Organization expense 27,603 17,134 44,737
------------ ------------ ------------ -----------
Total expenses 975,823 488,027 (123,249) 1,340,601
------------ ------------ ------------ -----------
Less waived and reimbursed fees 145,502 160,554 (70,971) (C) 235,085
------------ ------------ ------------ -----------
Net expenses 830,321 327,473 (52,278) 1,105,516
------------ ------------ ------------ -----------
Net investment income (loss) (325,867) (186,748) 52,278 (460,337)
------------ ------------ ------------ -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) from:
Investments 7,546,867 3,584,537 11,131,404
Foreign currency transactions (47,823) (87,516) (135,339)
Net change in unrealized appreciation of:
Investments (5,418,615) (2,535,669) (7,954,284)
Translation of other assets, liabilities and
forward contracts denominated in
foreign currencies 305,601 (1,496) 304,105
------------ ------------ ------------ -----------
Net gain from investments 2,386,030 959,856 -- 3,345,886
------------ ------------ ------------ -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 2,060,163 $ 773,108 $ 52,278 $ 2,885,549
============ ============ ============ ===========
</TABLE>
----------
(A) Reflects adjustment in expenses due to effects of management contract and
12b-1 plan rates.
(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>
ASIA SMALLCAP
PACIFIC ASIA GROWTH PRO FORMA
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C> <C>
COMMON STOCK: 96.29%
CHINA: 0.71%
400,000 400,000 Great Wall Technology Co.
HONG KONG: 32.78%
400,000 400,000 APT Satellite Holdings, Ltd.
100,000 100,000 ASM Pacific Technology
123,100 123,100 @ # Asia World Online, Inc.
150,000 150,000 Bank of East Asia Hkd
420,000 420,000 Cable & Wireless Hong Kong Telecom, Ltd.
120,000 26,000 146,000 Cheung Kong Holdings
40,000 40,000 @ China Mobile (Hong Kong), Ltd.
2,500,000 950,000 3,450,000 China National Aviation
150,000 150,000 @ China Telecom
120,000 120,000 @ China Unicom, Ltd.
140,000 66,000 206,000 Citic Pacific, Ltd.
65,000 65,000 CLP Holdings, Ltd.
560,000 560,000 CM Telecom International, Ltd.
70,000 70,000 Dao Heng Bank Group
2,300,000 2,300,000 @ Denway Motors, Ltd.
24,000 24,000 HSBC Holdings PLC
95,700 24,200 119,900 Hutchison Whampoa
750,000 750,000 JCG Holdings, Ltd.
750,000 750,000 NG Fung Hong, Ltd.
250,000 180,000 430,000 @ Pacific Century Cyberworks, Ltd.
160,000 160,000 Shanghai Industrial Holdings, Ltd.
34,000 34,000 Swire Pacific, Ltd. "A"
60,000 60,000 Television Broadcasts, Ltd.
INDONESIA: 0.54%
781,428 781,428 Matahari Putra Prima
90,000 90,000 PT Gudang Garam
MALAYSIA: 5.87%
150,000 150,000 @ Arab Malaysian Finance Bhd
76,000 76,000 Commerce Asset Holding Bhd
80,000 80,000 Genting Berhad
433,000 433,000 IGB Corporation Bhd
85,000 85,000 Malayan Bank Berhad
103,000 65,000 168,000 Resorts World Berhad
90,000 90,000 Telekom Malaysia Berhad
106,000 106,000 Tenaga Nasional Berhad
PHILIPPINES: 0.18%
40,000 40,000 Bank of Philippine Islands
SINGAPORE: 11.79%
33,000 33,000 @ Chartered Semiconductor
100,035 100,035 DBS Group Holdings, Ltd.
179,000 179,000 GES International Ltd.
253,000 253,000 @ Neptune Orient
34,650 34,650 Oversea-Chinese Banking Corporation, Ltd.
52,000 25,000 77,000 @ Pacific Century Regional Developments, Ltd.
60,000 60,000 Singapore Airlines, Ltd.
17,000 17,000 Singapore Press Holdings, Ltd.
200,000 200,000 Singapore Telecommunication
68,000 68,000 @ ST Assembly Test Service
SOUTH KOREA: 19.06%
25,000 25,000 H&CB
15,000 15,000 @ Hyundai Electronics
25,000 7,200 32,200 Korea Electric Power
20,000 3,000 23,000 Korea Telecom Corp.
8,000 8,000 LG Electronics
3,000 3,000 Pohang Iron & Steel
7,200 1,000 8,200 Samsung Electronics Co.
9,065 9,065 Samsung Fire & Marine Insurance Company
30,000 30,000 @ Shinhan Bank
1,000 15,000 16,000 SK Telecom Co., Ltd.
TAIWAN: 23.69%
58,934 140,000 198,934 Acer Inc. GDR
63,000 63,000 @ Advanced Semiconductor Engineering, Inc.
85,490 46,240 131,730 Asustek Computer, Inc. GDR
21,415 21,415 China Steel Corp. GDR
91,156 91,156 Compal Electronics, Inc
25,360 100,000 125,360 @ Far Eastern Textile GDR
30,890 30,890 @ Hon Hai Precision Industry Co., Ltd. GDR
30,327 57,750 88,077 Ritek Corp. GDR
53,100 53,100 @ Siliconware Precision ADR
22,390 22,390 Synnex Technology
14,000 14,000 @ Stark Technology, Inc.
61,478 58,400 119,878 @ Taiwan Semiconductor ADR
80,000 80,000 @ United Microelectronics Corporation, Ltd.
21,550 75,000 96,550 @ Winbond Electronic Corp GDR
THAILAND: 1.67%
27,500 27,500 @ Advanced Information Services
7,500 7,500 @ Siam Cement Public Co.
200,000 200,000 @ Thai Farmers Bank
TOTAL COMMON STOCKS
(Cost $24,195,851, $9,170,853, $33,366,704)
PREFERRED STOCK: 0.54%
THAILAND: 0.54%
410,000 410,000 Siam Commercial Bank
TOTAL PREFERRED STOCKS (COST $332,368)
WARRANTS: 0.08%
THAILAND: 0.08%
274,000 274,000 @ Siam Commercial Bank
TOTAL WARRANTS (COST $0)
TOTAL INVESTMENTS IN SECURITIES
(Cost $24,528,219, $9,170,853, $33,699,072)
OTHER ASSETS AND LIABILITIES-NET
NET ASSETS
ASIA SMALLCAP
PACIFIC ASIA GROWTH PRO FORMA
VALUE VALUE VALUE
------------ ------------ ------------
<S> <C> <C> <C> <C>
COMMON STOCK: 96.29%
CHINA: 0.71%
Great Wall Technology Co. $ 277,083 $ 277,083
------------ ------------ ------------
HONG KONG: 32.78%
APT Satellite Holdings, Ltd. $ 245,028 245,028
ASM Pacific Technology 374,575 374,575
Asia World Online, Inc. 325,700 325,700
Bank of East Asia Hkd 350,202 350,202
Cable & Wireless Hong Kong Telecom, Ltd. 923,995 923,995
Cheung Kong Holdings 1,327,689 287,683 1,615,372
China Mobile (Hong Kong), Ltd. 352,789 352,789
China National Aviation 455,391 173,059 628,450
China Telecom 1,322,878 1,322,878
China Unicom, Ltd. 254,778 254,778
Citic Pacific, Ltd. 732,730 345,451 1,078,181
CLP Holdings, Ltd. 302,693 302,693
CM Telecom International, Ltd. 152,661 152,661
Dao Heng Bank Group 309,794 309,794
Denway Motors, Ltd. 265,554 265,554
HSBC Holdings PLC 274,021 274,021
Hutchison Whampoa 1,203,079 304,245 1,507,324
JCG Holdings, Ltd. 375,216 375,216
NG Fung Hong, Ltd. 401,674 401,674
Pacific Century Cyberworks, Ltd. 493,875 355,611 849,486
Shanghai Industrial Holdings, Ltd. 289,415 289,415
Swire Pacific, Ltd. "A" 198,896 198,896
Television Broadcasts, Ltd. 400,231 400,231
------------ ------------ ------------
8,671,329 4,127,584 12,798,913
------------ ------------ ------------
INDONESIA: 0.54%
Matahari Putra Prima 66,961 66,961
PT Gudang Garam 145,501 145,501
------------ ------------ ------------
212,462 -- 212,462
------------ ------------ ------------
MALAYSIA: 5.87%
Arab Malaysian Finance Bhd 175,263 175,263
Commerce Asset Holding Bhd 220,000 220,000
Genting Berhad 294,737 294,737
IGB Corporation Bhd 142,434 142,434
Malayan Bank Berhad 344,473 344,473
Resorts World Berhad 281,895 177,895 459,790
Telekom Malaysia Berhad 310,263 310,263
Tenaga Nasional Berhad 345,895 345,895
------------ ------------ ------------
1,577,263 715,592 2,292,855
------------ ------------ ------------
PHILIPPINES: 0.18%
Bank of Philippine Islands 72,139 72,139
------------ ------------ ------------
72,139 -- 72,139
------------ ------------ ------------
SINGAPORE: 11.79%
Chartered Semiconductor 288,535 288,535
DBS Group Holdings, Ltd. 1,285,916 1,285,916
GES International Ltd. 177,035 177,035
Neptune Orient 234,127 234,127
Oversea-Chinese Banking Corporation, Ltd. 238,485 238,485
Pacific Century Regional Developments, Ltd. 710,596 341,242 1,051,838
Singapore Airlines, Ltd. 594,094 594,094
Singapore Press Holdings, Ltd. 265,475 265,475
Singapore Telecommunication 292,994 292,994
ST Assembly Test Service 174,823 174,823
------------ ------------ ------------
3,346,958 1,256,364 4,603,322
------------ ------------ ------------
SOUTH KOREA: 19.06%
H&CB 585,189 585,189
Hyundai Electronics 295,957 295,957
Korea Electric Power 775,767 223,428 999,195
Korea Telecom Corp. 967,500 264,218 1,231,718
LG Electronics 223,859 223,859
Pohang Iron & Steel 254,524 254,524
Samsung Electronics Co. 2,382,727 330,945 2,713,672
Samsung Fire & Marine Insurance Company 252,037 252,037
Shinhan Bank 282,514 282,514
SK Telecom Co., Ltd. 327,347 275,115 602,462
------------ ------------ ------------
5,589,011 1,852,116 7,441,127
------------ ------------ ------------
TAIWAN: 23.69%
Acer Inc. GDR 552,506 261,372 813,878
Advanced Semiconductor Engineering, Inc. 192,279 192,279
Asustek Computer, Inc. GDR 784,367 381,342 1,165,709
China Steel Corp. GDR 291,779 291,779
Compal Electronics, Inc 223,458 223,458
Far Eastern Textile GDR 318,268 124,030 442,298
Hon Hai Precision Industry Co., Ltd. GDR 772,250 772,250
Ritek Corp. GDR 241,100 230,632 471,732
Siliconware Precision ADR 491,175 491,175
Synnex Technology 481,385 481,385
Stark Technology, Inc. 186,370 186,370
Taiwan Semiconductor ADR 2,382,288 276,840 2,659,128
United Microelectronics Corporation, Ltd. 222,085 222,085
Winbond Electronic Corp GDR 619,563 216,728 836,291
------------ ------------ ------------
6,934,681 2,315,136 9,249,817
------------ ------------ ------------
THAILAND: 1.67%
Advanced Information Services 342,565 342,565
Siam Cement Public Co. 140,906 140,906
Thai Farmers Bank 168,475 168,475
------------ ------------ ------------
651,946 -- 651,946
------------ ------------ ------------
TOTAL COMMON STOCKS
(Cost $24,195,851, $9,170,853, $33,366,704) 27,332,872 10,266,792 37,599,664
------------ ------------ ------------
PREFERRED STOCK: 0.54%
THAILAND: 0.54%
Siam Commercial Bank 209,317 209,317
------------ ------------ ------------
TOTAL PREFERRED STOCKS (COST $332,368) 209,317 -- 209,317
------------ ------------ ------------
WARRANTS: 0.08%
THAILAND: 0.08%
Siam Commercial Bank 32,174 32,174
------------ ------------ ------------
TOTAL WARRANTS (COST $0) 32,174 -- 32,174
------------ ------------ ------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $24,528,219, $9,170,853, $33,699,072) 96.91% 27,574,363 10,266,792 37,841,155
OTHER ASSETS AND LIABILITIES-NET 3.09% 128,017 1,079,027 1,207,044
------ ------------ ------------ ------------
NET ASSETS 100.00% $ 27,702,380 $ 11,345,819 $ 39,048,199
====== ============ ============ ============
</TABLE>
----------
@ Non-income producing security
# Illiquid security
ADR American Depository Receipt
GDR Global Depository Receipt
4
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Basis of Combination:
On November 2, 2000, the Boards of Pilgrim Asia Pacific Fund ("Asia Pacific
Fund") and Pilgrim SmallCap Asia Growth Fund ("SmallCap Asia Growth Fund"),
approved an Agreement and Plan of Reorganization (the "Plan") whereby, subject
to approval by the shareholders of SmallCap Asia Growth Fund, Asia Pacific Fund
will acquire all the assets of SmallCap Asia Growth 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 Asia Pacific Fund (the "Merger").
The Merger will be accounted for as a tax free merger of investment
companies. The unaudited pro forma combined financial statements are presented
for the information of the reader and may not necessarily be representative of
what the actual combined financial statements would have been had the
reorganization occurred at June 30, 2000. The unaudited pro forma portfolio of
investments, and unaudited statement of assets and liabilities reflect the
financial position of Asia Pacific Fund and SmallCap Asia Growth Fund at June
30, 2000. The unaudited pro forma statement of operations reflects the results
of operations of Asia Pacific Fund and SmallCap Asia Growth 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 Asia Pacific Fund and SmallCap Asia Growth 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 Asia Pacific Fund for pre-combination periods will not
be restated.
The pro forma portfolio of investments, and unaudited statements of assets
and liabilities and operations should be read in conjunction with the historical
financial statements of the Funds incorporated by reference in the Statements of
Additional Information.
Note 2 - Security Valuation:
Investments in equity securities traded on a national securities exchange
or included on the NASDAQ National Market System are valued at the last reported
sale price. Securities traded on an exchange or NASDAQ for which there has been
no sale and securities traded in the over-the-counter-market are valued at the
mean between the last reported bid and ask prices. 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 - Foreign Currency Transactions:
The books and records of the funds are maintained in U.S. dollars. Any foreign
currency amounts are translated into U.S. dollars on the following basis:
(1) Market value of investment securities, other assets and liabilities--at the
exchange rates prevailing at the end of the day.
(2) Purchases and sales of investment securities, income and expenses - at the
rates of exchange prevailing on the respective dates of such transactions.
Although the net assets and the market values are presented at the foreign
exchange rates at the end of the day, the Funds do not isolate the portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from the changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gains or losses from the investments. Reported net realized foreign
exchange gains or losses arise from sales and maturities of short-term
securities, sales of foreign currencies, currency gains or losses realized
between the trade and settlement on securities transactions, the difference
5
<PAGE>
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books, and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign exchange gains and losses
arise from changes in the value of assets and liabilities other than investments
in securities at fiscal year end, resulting from changes in the exchange rate.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with investing U.S. companies and the U.S.
Government. These risks include but are not limited to re-evaluation of
currencies and future adverse political and economic developments which could
cause securities and their markets to be less liquid and prices more volatile
than those of the comparable U.S. Government.
Note 4 - Capital Shares:
The unaudited pro forma net asset value per share assumes additional shares
of common stock issued in connection with the proposed acquisition of SmallCap
Asia Growth Fund by Asia Pacific Fund as of June 30, 2000. The number of
additional shares issued was calculated by dividing the net asset value of each
Class A of SmallCap Asia Growth Fund by the respective Class A net asset value
per share of Asia Pacific Fund .
Note 5 - Unaudited Pro Forma Adjustments:
The accompanying unaudited pro forma financial statements reflect changes
in fund shares as if the merger had taken place on June 30, 2000. SmallCap Asia
Growth Fund expenses were adjusted assuming Asia Pacific Fund's fee structure
was in effect for the year ended June 30, 2000.
Note 6 - Merger Costs:
Merger costs are estimated at approximately $125,000 and are not included
in the unaudited pro forma statement of operations since these costs are not
reccurring. These costs represent the estimated expense of both Funds carrying
out their obligations under the Plan and consist of management's estimate of
legal fees, accounting fees, printing costs and mailing charges related to the
proposed merger.
Note 7 - Federal Income Taxes:
It is the policy of the Funds, to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute substantially all of their net investment income and any net
realized gains to their shareholders. Therefore, a federal income tax or excise
tax provision is not required. In addition, by distributing during each calendar
year substantially all of its net investment income and net realized capital
gains, each Fund intends not to be subject to any federal excise tax.
The Board of Directors intends to offset any net capital gains with any
available capital loss carryforward until each carryforward has been fully
utilized or expires. In addition, no capital gain distribution shall be made
until the capital loss carryforward has been fully utilized or expires.
6
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Reference is made to Section 2-418 of the General Corporation Law of the
State of Maryland, Article VII of the Registrant's Articles of Corporation,
Article VI of the Registrant's Bylaws, the Investment Management filed as
Exhibit (6)(A), and the Underwriting Agreement filed as Exhibit 7(A) provide for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such a director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 16. EXHIBITS
(1) (A) Form of Articles of Incorporation (3)
(B) Form of Articles of Supplementary designating Pilgrim America
Strategic Income Fund (3)
(C) Form of Amendment to Articles of Incorporation (3)
(D) Form of Certificate of Correction to Articles of Incorporation (6)
(E) Form of Certificate of Correction to Articles of Supplementary (6)
(F) Form of Articles Supplementary designating Class C (6)
(G) Form of Articles Supplementary designating Class Q (9)
(H) Form of Articles of Amendment (10)
(I) Form of Certificate of Correction (10)
(2) Form of Amended and Restated Bylaws (1)
(3) Not Applicable
(4) Agreement and Plan of Reorganization filed herewith.
(5) Specimen security (2)
1
<PAGE>
(6) (A) Form of Investment Management Agreement (10)
(B) Form of Portfolio Management Agreement with HSBC Asset Management
Americas Inc. and HSBC Asset Management Hong Kong Limited relating
to Asia-Pacific Equity Fund (7)
(7) (A) Form of Underwriting Agreement
(B) Form of Selling Group Agreement (3)
(C) Form of Service Agreement with broker-dealers (3)
(8) Not Applicable
(9) (A) Form of Custody Agreement (3)
(B) Form of Recordkeeping Agreement (3)
(10) (A) Form of Service and Distribution Plan for Class A Shares (3)
(B) Form of Service and Distribution Plan for Class B Shares (5)
(C) Form of Service and Distribution Plan for Class M Shares (3)
(D) Form of Amended and Restated Multiple Class Plan Adopted Pursuant
to Rule 18f-3 (8)
(11) Form of Opinion and Consent of Counsel
(12) Form of Opinion and Consent of Counsel supporting tax matters and
consequences
(13) (A) Form of Shareholder Service Agreement with Pilgrim Group, Inc. (6)
(B) Form of Amended and Restated Expense Limitation Agreement (9)
(14) Consent of Independent Auditors
(15) Not Applicable
(16) Powers of Attorney for Directors are filed herewith
(17) Not Applicable
2
<PAGE>
----------
(1) Incorporated by reference to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A as filed on October 30, 1996.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A as filed on June 22, 1995.
(3) Incorporated by reference to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A as filed on August 14, 1998.
(4) Incorporated by reference to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A as filed on October 27, 1998.
(5) Incorporated by reference to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A as filed on March 25, 1999.
(6) Incorporated by reference to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A as filed on May 24, 1999.
(7) Incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A as filed on September 2, 1999.
(8) Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A as filed on October 29, 1999.
(9) Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A as filed on January 4, 2000.
(10) Incorporated by reference to Post-Effective Amendment No 14 to the
Registration Statement on Form N-1A 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) of the Securities Act 17 CFR
230.145(c), the reoffering prospectus will contain the information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
3
<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
Phoenix and State of Arizona on the 4th day of December, 2000.
PILGRIM ADVISORY FUNDS, INC.
By: /s/ James M. Hennessy
---------------------------------
James M. Hennessy*
Senior Executive Vice President &
Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ John G. Turner
---------------------------- Director and Chairman December 13, 2000
John G. Turner*
/s/ Robert W. Stallings
---------------------------- Director and President December 13, 2000
Robert W. Stallings* (Chief Executive Officer)
/s/ Michael J. Roland
---------------------------- Senior Vice President and December 13, 2000
Michael J. Roland* Principal Financial Officer
/s/ Al Burton
---------------------------- Director December 13, 2000
Al Burton*
/s/ Paul S. Doherty
---------------------------- Director December 13, 2000
Paul S. Doherty*
/s/ Robert B. Goode, Jr.
---------------------------- Director December 13, 2000
Robert B. Goode, Jr.*
/s/ Alan L. Gosule
---------------------------- Director December 13, 2000
Alan L. Gosule*
/s/ Walter H. May
---------------------------- Director December 13, 2000
Walter H. May*
4
<PAGE>
/s/ Jock Patton
---------------------------- Director December 13, 2000
Jock Patton*
/s/ David W.C. Putnam
---------------------------- Director December 13, 2000
David W.C. Putnam*
/s/ John R. Smith
---------------------------- Director December 13, 2000
John R. Smith*
/s/ David W. Wallace
---------------------------- Director December 13, 2000
David W. Wallace*
* By: /s/ James M. Hennessy
------------------------
James M. Hennessy
Attorney-in-Fact**
** Executed pursuant to powers of attorney filed herewith.
5
<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 Advisory Funds, Inc. 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
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 Advisory Funds, Inc. 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/ Paul S. Doherty
------------------------------- -------------------------------
John G. Turner Paul S. Doherty
/s/ Alan L. Gosule /s/ David W.C. Putnam
------------------------------- -------------------------------
Alan L. Gosule David W.C. Putnam
/s/ Robert W. Stallings /s/ Robert B. Goode, Jr.
------------------------------- -------------------------------
Robert W. Stallings Robert B. Goode, Jr.
/s/ Walter H. May /s/ John R. Smith
------------------------------- -------------------------------
Walter H. May John R. Smith
/s/ Al Burton /s/ David W. Wallace
------------------------------- -------------------------------
Al Burton David W. Wallace
/s/ Jock Patton
-------------------------------
Jock Patton
7
<PAGE>
EXHIBIT INDEX
(4) Form of Agreement and Plan of Reorganization between Pilgrim Advisory
Funds, Inc., on behalf of Pilgrim Asia-Pacific Equity Fund, and Pilgrim
SmallCap Asia Growth Fund, Inc.
(7)(A) Form of Underwriting Agreement between Registrant and Pilgrim Securities,
Inc.
(11) Form of Opinion and Consent of Counsel
(12) Form of Opinion and Consent of Counsel supporting tax matters and
consequences
(14) Consent of Independent Auditors
<PAGE>
PILGRIM SMALLCAP ASIA GROWTH FUND
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS ON ________ ___, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Robert W. Stallings and James M. Hennessy or
any one or more of them, proxies, with full power of substitution, to vote all
shares of the Pilgrim SmallCap Asia Growth Fund (the "Fund") which the
undersigned is entitled to vote at the Special Meeting of Shareholders of the
Fund to be held at the offices of the Fund at 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 DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL:
1. To approve an Agreement and Plan of Reorganization providing for the
acquisition of all of the assets of Pilgrim SmallCap Asia Growth Fund by Pilgrim
Asia-Pacific Equity Fund in exchange for shares of common stock of Pilgrim
Asia-Pacific Equity Fund and the assumption by Pilgrim Asia-Pacific Equity Fund
of all of the liabilities of Pilgrim SmallCap Asia Growth Fund.
For [ ] Against [ ] Abstain [ ]
This proxy must be signed exactly as your name(s) appears hereon. If as an
attorney, executor, guardian or in some representative capacity or as an officer
of a corporation, please add titles as such. Joint owners must each sign.
----------------------------------------- -------------------------
Signature Date
----------------------------------------- -------------------------
Signature (if held jointly) Date
