As filed with the Securities and Exchange Commission on December 12, 2001
Securities Act File No. 333-___
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
PILGRIM EQUITY TRUST
(Exact Name of Registrant as Specified in Charter)
7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258-2034
(Address of Principal Executive Offices) (Zip Code)
1-800-992-0180
(Registrant's Area Code and Telephone Number)
Kimberly A. Anderson
ING Pilgrim Investments, LLC
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
(Name and Address of Agent for Service)
With copies to:
Jeffrey S. Puretz, Esq.
Dechert
1775 Eye Street, N.W.
Washington, DC 20006-2401
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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 11, 2002
pursuant to Rule 488 under the Securities Act of 1933, as amended.
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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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Pilgrim MidCap Growth Fund
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
February 5, 2002
Dear Shareholder:
Your Board of Trustees has called a special meeting of shareholders
("Special Meeting") of Pilgrim MidCap Growth Fund ("MidCap Growth Fund")
scheduled to be held at 8:00 a.m., local time, on April 4, 2002 at 7337 East
Doubletree Ranch Road, Scottsdale, Arizona 85258-2034.
The Board of Trustees of MidCap Growth Fund has reviewed and recommends the
proposed reorganization (the "Reorganization") of MidCap Growth Fund, which is
managed by ING Pilgrim Investments, LLC ("ING Pilgrim"), into Pilgrim MidCap
Opportunities Fund ("MidCap Opportunities Fund"), which is also managed by ING
Pilgrim (each a "Fund," and collectively, the "Funds"). Both Funds are members
of the mutual fund group called the "Pilgrim Funds."
If approved by shareholders, you would become a shareholder of MidCap
Opportunities Fund on the date that the Reorganization occurs. The
Reorganization would provide shareholders of MidCap Growth Fund with an
opportunity to participate in a larger fund with substantially similar
investment objectives and strategies.
You are being asked to vote to approve an Agreement and Plan of
Reorganization. The accompanying document describes the proposed transaction and
compares the strategies and expenses of each of the Funds for your evaluation.
After careful consideration, the Board of Trustees of MidCap Growth Fund
unanimously approved this proposal and recommends 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. 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 APRIL 3, 2002.
MidCap 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,
James M. Hennessy,
President and Chief Executive Officer
Pilgrim MidCap Growth Fund
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
PILGRIM MIDCAP GROWTH FUND
SCHEDULED FOR APRIL 4, 2002
To the Shareholders:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders ("Special
Meeting") of Pilgrim MidCap Growth Fund ("MidCap Growth Fund") is scheduled for
April 4, 2002 at 8:00 a.m., local time, at 7337 East Doubletree Ranch Road,
Scottsdale, Arizona 85258-2034.
At the Special Meeting, you will be asked to consider and approve the
following proposals:
(1) To approve an Agreement and Plan of Reorganization (the
"Reorganization Agreement") by and among MidCap Growth Fund and
Pilgrim MidCap Opportunities Fund ("MidCap Opportunities Fund"),
providing for the merger of MidCap Growth Fund with and into MidCap
Opportunities Fund; and
(2) To transact such other business, not currently contemplated, that may
properly come before the Special Meeting in the discretion of the
proxies or their substitutes.
Shareholders of record at the close of business on January 11, 2002, are
entitled to notice of, and to vote at, the Special Meeting or any adjournment
thereof. Your attention is called to the accompanying Proxy
Statement/Prospectus. Regardless of whether you plan to attend the Special
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.
Proxies may be revoked at any time before they are exercised by executing and
submitting a revised proxy, by giving written notice of revocation to MidCap
Growth Fund or by voting in person at the Special Meeting.
By Order of the Board of Trustees
Kimberly A. Anderson,
Vice President and Secretary
February 5, 2002
PILGRIM MIDCAP OPPORTUNITIES FUND
PROXY STATEMENT/PROSPECTUS
FEBRUARY 5, 2002
TABLE OF CONTENTS
INTRODUCTION...................................................................1
SUMMARY........................................................................2
The Proposed Reorganization.................................................2
Comparison of Investment Objectives and Strategies..........................4
Comparison of Portfolio Characteristics.....................................5
Relative Performance........................................................6
Performance of MidCap Opportunities Fund....................................7
Comparison of Investment Techniques and Principal
Risks of Investing in the Funds............................................9
COMPARISON OF FEES AND EXPENSES...............................................10
Management Fees............................................................10
Administration Fees........................................................10
Distribution and Service Fees..............................................10
Expense Limitation Agreements..............................................10
Expense Table..............................................................10
General Information........................................................13
INFORMATION ABOUT THE REORGANIZATION..........................................14
The Reorganization Agreement...............................................14
Reasons for the Reorganization.............................................14
Board Considerations.......................................................15
Tax Considerations.........................................................15
Expenses of the Reorganization.............................................16
ADDITIONAL INFORMATION ABOUT THE FUNDS........................................16
Form of Organization.......................................................16
Distributor................................................................16
Dividends and Other Distributions..........................................16
Capitalization.............................................................17
Portfolio Managers of MidCap Opportunities Fund............................17
GENERAL INFORMATION ABOUT THE PROXY STATEMENT.................................18
Solicitation of Proxies....................................................18
Voting Rights..............................................................18
Other Matters to Come Before the Special Meeting...........................19
Shareholder Proposals......................................................19
Reports to Shareholders....................................................19
APPENDICES...................................................................A-E
Management's Discussion and Analysis......................................A-1
Form of Agreement and Plan of Reorganization..............................B-1
Additional Information Regarding Pilgrim MidCap Opportunities Fund........C-1
List of Pilgrim Funds.....................................................D-1
Control Persons and Principal Shareholders................................E-1
PROXY STATEMENT/PROSPECTUS
FEBRUARY 5, 2002
PILGRIM MIDCAP OPPORTUNITIES FUND
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to you in connection
with a special meeting of shareholders of Pilgrim MidCap Growth Fund ("MidCap
Growth Fund") to be held on April 4, 2002 ("Special Meeting"). As more fully
described in this Proxy Statement, the purpose of the Special Meeting is to vote
on a proposed reorganization ("Reorganization") of MidCap Growth Fund into
Pilgrim MidCap Opportunities Fund ("MidCap Opportunities Fund") (each a "Fund,"
and collectively, the "Funds").
Under an Agreement and Plan of Reorganization ("Reorganization Agreement"),
MidCap Growth Fund would transfer all of its assets to MidCap Opportunities Fund
in exchange for shares of beneficial interest of MidCap Opportunities Fund and
the assumption by MidCap Opportunities Fund of MidCap Growth Fund's liabilities.
MidCap Opportunities Fund shares would then be distributed to shareholders of
MidCap Growth Fund so that each shareholder would receive a number of full and
fractional shares of MidCap Opportunities Fund equal to the aggregate value of
shares of MidCap Growth Fund held by such shareholder. As a result of the
Reorganization, MidCap Growth Fund will distribute shares of MidCap
Opportunities Fund in liquidation of MidCap Growth Fund on April 19, 2002, or
such other date as the parties may agree ("Closing Date").
Because you, as a shareholder of MidCap Growth Fund, are being asked to
approve the Reorganization Agreement that will result in a transaction in which
you ultimately hold shares of MidCap Opportunities Fund, this Proxy Statement
also serves as a Prospectus for MidCap Opportunities Fund. MidCap Opportunities
Fund is a diversified, open-end management investment company. MidCap
Opportunities Fund's investment objective is to seek long-term capital
appreciation. The Fund, under normal market conditions, seeks to achieve its
investment objective by investing at least 65% of its total assets in the common
stocks of mid-sized U.S. companies that the portfolio managers feel have above
average prospects for growth, as described more fully below.
This Proxy Statement/Prospectus, which should be read and retained for
future reference, sets forth concisely the information that a shareholder should
know before voting on the Reorganization Agreement. A Statement of Additional
Information ("SAI") relating to this Proxy Statement dated January __, 2002
containing additional information about the Reorganization and the parties
thereto, has been filed with the U.S. Securities and Exchange Commission ("SEC")
and is incorporated herein by reference. For a more detailed discussion of the
investment objectives, strategies and restrictions of the Funds, see the Class
A, B, C, M and T and Class Q Prospectuses dated October 1, 2001 and SAI for the
Funds dated November 9, 2001, which are incorporated herein by reference. Each
Fund 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 MidCap Opportunities Fund, dated
May 31, 2001 is incorporated herein by reference. You may receive a copy of the
most recent Prospectuses, SAI, SAI relating to this Proxy Statement, annual
report and any more recent semi-annual report for either of the Funds, without
charge by contacting the Funds at Pilgrim Funds, 7337 East Doubletree Ranch
Road, Scottsdale, Arizona 85258-2034 or by calling 1-800-992-0180.
You can copy and review information about each Fund (including the SAI) at
the SEC's Public Reference Room in Washington, D.C. You may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-202-942-8090. Reports and other information about each Fund are available on
the EDGAR Database on the SEC'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: publicinfo@sec.gov, or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102.
THE U.S. 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
SUMMARY
You should read this entire Proxy Statement/Prospectus carefully. For
additional information, you should consult the Class A, B, C, M and T and Class
Q Prospectuses (the "Pilgrim Prospectuses") and the Reorganization Agreement,
which is attached hereto as Appendix B.
THE PROPOSED REORGANIZATION
On November 2, 2001, the Board of Trustees of MidCap Growth Fund approved
the Reorganization Agreement. Subject to shareholder approval, the
Reorganization Agreement provides for:
* the transfer of all of the assets of MidCap Growth Fund to MidCap
Opportunities Fund in exchange for shares of beneficial interest of
MidCap Opportunities Fund;
* the assumption by MidCap Opportunities Fund of all of the liabilities
of MidCap Growth Fund;
* the distribution of MidCap Opportunities Fund shares to the
shareholders of MidCap Growth Fund; and
* the complete liquidation of MidCap Growth Fund.
The Reorganization is expected to be effective upon the Closing Date. As a
result of the Reorganization, each owner of shares of each Class of MidCap
Growth Fund would become a shareholder in the same Class of shares of MidCap
Opportunities Fund.
Each shareholder would hold, immediately after the Closing Date, shares of
the corresponding Class of MidCap Opportunities Fund having an aggregate value
equal to the aggregate value of the shares of the Class of MidCap Growth Fund
held by that shareholder as of the Closing Date.
The Reorganization is one of several reorganizations that are proposed
among various Pilgrim Funds. The Pilgrim Funds complex has grown in recent years
through the addition of many funds. Management of the Pilgrim Funds has proposed
the consolidation of several Pilgrim Funds that they believe have similar or
compatible investment strategies. The proposed reorganizations are designed to
reduce the substantial overlap in funds in the Pilgrim Funds complex thereby
eliminating inefficiencies arising from having similar portfolios in the same
fund group and confusion about overlapping funds. ING Pilgrim Investments, LLC
("ING Pilgrim" or the "Adviser"), the investment adviser to both of the Funds,
also believes that the reorganizations may benefit fund shareholders by
resulting in surviving funds with a greater asset base. This is expected to
provide greater investment opportunities for the surviving funds and the
potential to take larger portfolio positions.
In considering whether to approve the Reorganization, you should note that:
* The Funds have investment objectives and strategies that are
substantially similar;
* For each full year since its inception, the performance of MidCap
Opportunities Fund is slightly superior to that of MidCap Growth
Fund(1);
* MidCap Opportunities Fund is the smaller Fund ($80m verse $218m,
effective 9/30/01),
* Each Fund is managed by the same portfolio management team, which will
remain intact after the Reorganization; and
- ----------
(1) Past performance is not necessarily an indication of how either Fund will
perform in the future.
2
* Because MidCap Opportunities Fund has a higher expense ratio for each
Class of shares than MidCap Growth Fund, ING Pilgrim has agreed to
limit ordinary operating expenses of MidCap Opportunities Fund for a
two-year period beginning on January 1, 2002, so that shareholders of
MidCap Growth Fund are expected to incur only slightly higher
expenses. For example, the total operating expenses before and after
the merger, expressed as a percentage of net asset value per share for
each Class of each Fund, based on the fiscal period ended May 31,
2001, are as follows:
BEFORE THE MERGER
CLASS A CLASS B CLASS C CLASS Q
------- ------- ------- -------
* MidCap Growth Fund before expense
reimbursement from management: 1.44% 2.09% 2.09% 1.18%
* MidCap Opportunities Fund before
expense reimbursement from
management: 1.97% 2.67% 2.67% 1.73%
* MidCap Growth Fund after expense
reimbursement from management:(1) 1.45% 2.10% 2.10% 1.19%
* MidCap Opportunities Fund after
expense reimbursement from
management:(2) 1.97% 2.67% 2.67% 1.73%
AFTER THE MERGER
* PRO FORMA estimated expenses
before expense reimbursement from
management: 1.73% 2.43% 2.43% 1.52%
* PRO FORMA estimated expenses after
expense reimbursement from
management: 1.50% 2.20% 2.20% 1.35%
Approval of the Reorganization Agreement requires the vote, if a quorum is
present, of the lesser of (i) 67% or more of the shares, provided that 50% of
the shares are present in person or represented by proxy at the Special Meeting,
or (ii) a majority of the shares. The Declaration of Trust defines a "quorum" as
one-third of the shares entitled to vote.
AFTER CAREFUL CONSIDERATION, THE BOARD OF TRUSTEES OF MIDCAP GROWTH FUND
UNANIMOUSLY APPROVED THE PROPOSED REORGANIZATION. THE BOARD RECOMMENDS THAT YOU
VOTE "FOR" THE PROPOSED REORGANIZATION.
- ----------
(1) ING Pilgrim has entered into an expense limitation agreement with MidCap
Growth Fund that limits expenses of the Fund to 1.60%, 2.25%, 2.25%, and
1.50% for Class A, Class B, Class C and Class Q, respectively. The expense
limitation agreement will continue at least through October 31, 2002;
however, there is no assurance that the expense limitation agreement will
continue after that date. Currently, the Fund's expenses are below the
contractual limit, and the Fund is in a recoupment period during which ING
Pilgrim is reimbursed up to the expense limit for amounts previously waived
pursuant to the expense limitation agreement.
(2) ING Pilgrim has agreed to enter into an expense limitation agreement with
MidCap Opportunities Fund that limits expenses of the Fund to 1.50%, 2.20%,
2.20%, and 1.35% for Class A, Class B, Class C, and Class Q, respectively.
The expense limit commenced on January 1, 2002 and will last for a period
of two years. There is no assurance that the expense limitation agreement
will continue after that date.
3
COMPARISON OF INVESTMENT OBJECTIVES AND STRATEGIES
The following summarizes the investment objective, strategies and
management differences, if any, between MidCap Growth Fund and MidCap
Opportunities Fund.
MIDCAP GROWTH FUND MIDCAP OPPORTUNITIES FUND
------------------ -------------------------
INVESTMENT OBJECTIVE Seeks maximum long-term capital Seeks long-term capital appreciation.
appreciation.
PRIMARY INVESTMENT STRATEGIES * Normally invests at least 65% of * Normally invests at least 65% of
its total assets in equity its total assets in common stocks of
securities of medium-sized U.S. mid-sized U.S. companies that the
companies, and at least 75% of its portfolio managers feel have above
total assets in common stocks that average prospects for growth.
the portfolio managers feel have
above average prospects for growth. * The portfolio managers use a
"top-down" disciplined investment
* The portfolio managers focus on process, which includes extensive
both a "bottom-up" analysis that database screening, frequent
evaluates the financial condition fundamental research, identification
and competitiveness of individual and implementation of a trend-oriented
companies and a thematic approach in approach in structuring the portfolio
structuring the portfolio and a sell and a sell discipline.
discipline.
* The portfolio managers seek to
* The portfolio managers seek to invest in companies expected to benefit
identify the major social, economic, most from the major social, economic
and technological trends that are and technological trends that are
likely to shape the future of likely to shape the future of business
business and commerce over the next and commerce over the next three to
three to five years. These trends five years; and attempt to provide a
are used to provide a framework for framework for identifying the
identifying industries and companies industries and companies expected to
expected to benefit the most. benefit the most.
* The Fund may invest in initial * The top-down approach is combined
public offerings. with rigorous fundamental research (a
bottom-up approach) to guide stock
* The Fund is generally expected selection and portfolio structure.
to engage in frequent and active
trading of its portfolio securities. * The Fund may invest in initial
public offerings.
* The Fund is generally expected to
engage in frequent and active trading
of its portfolio securities.
INVESTMENT ADVISER ING Pilgrim ING Pilgrim
PORTFOLIO MANAGERS* Mary Lisanti and Jeffrey Bernstein Mary Lisanti and Jeffrey Bernstein
As you can see from the chart above, the investment objectives and strategies of
the Funds are substantially similar.
- ----------
* Prior to April 1, 2000, MidCap Growth Fund was managed by a different
portfolio management team.
4
COMPARISON OF PORTFOLIO CHARACTERISTICS
The following table compares certain characteristics of the portfolios of
the Funds as of May 31, 2001:
MIDCAP GROWTH FUND MIDCAP OPPORTUNITIES FUND
------------------ -------------------------
Net Assets $356,581,124 $126,691,302
Number of Holdings 87 95
Portfolio Turnover Rate(1) 262% 182%
Average Market Capitalization
(dollar weighted) $5.9 billion $5.9 billion
As a percentage of net assets:
Equity Securities 97% 98%
Holdings in companies with
market capitalizations less
than $1 billion 3% 3%
Holdings in companies with
market capitalizations of $1
billion to $5 billion 50% 50%
Holdings in companies with
market capitalizations of over
$5 billion 45% 45%
Foreign Securities -- --
Convertible Securities -- --
Preferred Securities -- --
Short Term Debt Investments 1.20% 0.78%
Top 5 Industries
(as a % of net assets) Semiconductors 13.49% Semiconductors 12.89%
Telecommunications 10.93% Telecommunications 10.18%
Oil and Gas 9.88% Oil and Gas 10.14%
Retail 8.76% Retail 8.72%
Biotechnology 5.74% Biotechnology 6.89%
Top 10 Holdings TJX Cos., Inc. 2.28% Utstarcom, Inc. 2.04%
(as a % of net assets) National-Oilwell, Inc. 2.13% Genzyme Corp. - General Division 1.99%
Utstarcom, Inc. 2.03% The Shaw Group, Inc. 1.97%
Genzyme Corp. - General Division 1.99% National-Oilwell, Inc. 1.84%
The Shaw Group, Inc. 1.96% Capstone Turbine Corp. 1.83%
Capstone Turbine Corp. 1.95% Fluor Corp. 1.82%
Fluor Corp. 1.81% Diamond Offshore Drilling 1.79%
Diamond Offshore Drilling 1.78% Conseco, Inc. 1.77%
Mercury Interactive Corp. 1.77% TJX Cos., Inc. 1.75%
Conseco, Inc. 1.76% Intersil Corp. 1.70%
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(1) For the fiscal period ended May 31, 2001.
5
RELATIVE PERFORMANCE
The following table shows, for the periods shown, the average annual total
return for: (i) Class A shares of MidCap Growth Fund; (ii) Class A shares of
MidCap Opportunities Fund; (iii) the Standard & Poor's MidCap 400 Index ("S&P
MidCap 400 Index"); and (iv) the Russell MidCap Growth Index. Performance of the
Funds in the table does not reflect the deduction of sales loads, and would be
lower if it did. Performance of the Funds in the table also does not include tax
impact. The indices have an inherent performance advantage over the Funds since
they have no cash in their portfolios, impose no sales charges and incur no
operating expenses. An investor cannot invest directly in an index. Total return
is calculated assuming reinvestment of all dividends and capital gain
distributions at net asset value and excluding the deduction of sales charges.
Each Fund's past performance is not an indication of its future performance.
MIDCAP S&P
CALENDAR YEAR/ MIDCAP OPPORTUNITIES MIDCAP 400 RUSSELL MIDCAP
PERIOD ENDED GROWTH FUND(2) FUND(3) INDEX(4) GROWTH INDEX(5)
- ------------ -------------- ------- -------- ---------------
12/31/94 -11.00% N/A -3.26% -2.17%
12/31/95 37.64% N/A 31.07% 33.98%
12/31/96 15.84% N/A 19.23% 17.48%
12/31/97 15.88% N/A 32.24% 22.54%
12/31/98 14.14% N/A 19.09% 17.86%
12/31/99 97.56% 103.24% 14.70% 51.29%
12/31/00 -4.57% -0.35% 17.51% -11.75%
1/1/01-10/31/01(1) -44.47% -44.30% -12.02% -30.55%
- ----------
(1) Not annualized.
(2) Class A and Class C shares of MidCap Growth Fund commenced operations on
April 19, 1993. Class B shares commenced operations on June 1, 1995. Class
Q Shares commenced operations on June 30, 1994. ING Pilgrim has been the
Fund's investment adviser since May 24, 1999; and prior to April 1, 2000,
the Fund was managed by a sub-adviser.
(3) Classes A, B and C shares of MidCap Opportunities Fund commenced operations
on August 20, 1998. Class Q commenced operations on April 4, 2000.
(4) The S&P MidCap 400 Index is an unmanaged index that measures the
performance of the mid-size company segment of the U.S. market.
(5) The Russell MidCap Growth Index measures the performance of those companies
included in the Russell MidCap Index with relatively higher price-to-book
ratios and higher forecasted growth values.
6
PERFORMANCE OF MIDCAP OPPORTUNITIES FUND
The following bar chart and table provide an indication of the risks of
investing in MidCap Opportunities Fund by showing (on a calendar year basis)
changes in the Fund's annual total return from year to year and by showing (on a
calendar year basis) how the Fund's average annual returns for one year and
since inception compare to those of the S&P MidCap 400 Index. The information in
the bar chart is based on the performance of the Class A shares of the Fund
although the bar chart does not reflect the deduction of the sales load on Class
A shares. If the bar chart included the sales load, returns would be less than
those shown. MidCap Opportunities Fund's past performance is not necessarily an
indication of how the Fund will perform in the future. Total returns include
reinvestment of dividends and capital gains distributions, if any. All indices
are unmanaged.
CALENDAR YEAR-BY-YEAR RETURNS(%) (1)
1991 1992 1993 1994 1995 1996 1997 1998 1999(2) 2000
---- ---- ---- ---- ---- ---- ---- ---- ------- ----
103.24 -0.35%
- ----------
(1) Classes A, B and C shares of MidCap Opportunities Fund commenced operations
on August 20, 1998. Class Q commenced operations on April 4, 2000. During
the period shown in the chart, the Fund's best quarterly performance was
44.90% for the quarter ended December 31, 1999, and the Fund's worst
quarterly performance was -19.33% for the quarter ended December 31, 2000.
The Fund's year-to-date return as of September 30, 2001 was -49.27%.
(2) Returns in 1999 were achieved during unusually favorable conditions in the
equity markets, particularly for technology companies and initial public
offerings. You should not expect that such favorable returns can be
consistently achieved.
7
The following table shows what the average annual total returns of MidCap
Opportunities Fund would equal if you averaged out actual performance over
various lengths of time assuming that a shareholder paid the maximum front-end
or contingent deferred sales charge for the applicable class, compared to the
S&P MidCap 400 Index, an unmanaged index. The S&P MidCap 400 Index has an
inherent performance advantage over MidCap Opportunities 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. MidCap Opportunities
Fund's performance reflected in the following table assumes the deduction of the
maximum sales charge in all cases.
AVERAGE ANNUAL TOTAL RETURNS for the year ended December 31, 2000
SINCE
1 YEAR INCEPTION(1)
------ ------------
MidCap Opportunities Fund - Class A (2) -6.08% 46.55%
MidCap Opportunities Fund - Class B (3) -6.13% 48.64%
MidCap Opportunities Fund - Class C (4) -2.03% 49.17%
S&P MidCap 400 Index (5) 17.51% 30.86%
- ----------
(1) Classes A, B and C shares of MidCap Opportunities Fund commenced operations
on August 20, 1998. Class Q commenced operations on April 4, 2000.
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for
the 1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The S&P MidCap 400 Index is an unmanaged index that measures the
performance of the mid-size company segment of the U.S. market.
The following table shows the performance of MidCap Opportunities Fund if
sales charges are not reflected.
AVERAGE ANNUAL TOTAL RETURNS for the year ended December 31, 2000
SINCE
1 YEAR INCEPTION(1)
------ ------------
MidCap Opportunities Fund - Class A -0.35% 50.26%
MidCap Opportunities Fund - Class B -1.07% 49.37%
MidCap Opportunities Fund - Class C -1.03% 49.17%
S&P MidCap 400 Index(2) 17.51% 30.86%
- ----------
(1) Classes A, B and C shares of MidCap Opportunities Fund commenced operations
on August 20, 1998. Class Q commenced operations on April 4, 2000.
(2) The S&P MidCap 400 Index is an unmanaged index that measures the
performance of the mid-size company segment of the U.S. market.
For a discussion by the portfolio managers regarding the performance of
MidCap Opportunities Fund for the fiscal period ended May 31, 2001, see Appendix
A to this Proxy Statement/Prospectus. Additional information about MidCap
Opportunities Fund is included in Appendix C to this Proxy Statement/Prospectus.
8
COMPARISON OF INVESTMENT TECHNIQUES AND PRINCIPAL RISKS OF INVESTING IN THE
FUNDS
Because the Funds have investment objectives and policies that are
substantially similar, many of the risks of investing in MidCap Opportunities
Fund are substantially similar to the risks of investing in MidCap Growth Fund.
You may lose money on your investment in either Fund. The value of each Fund's
shares may go up or down, sometimes rapidly and unpredictably. Market
conditions, financial conditions of issuers represented in the portfolio,
investment strategies, portfolio management and other factors affect the
volatility of each Fund's shares. The following summarizes the principal
investment techniques and risks of investing in the Funds.
EQUITY SECURITIES. Both MidCap Opportunities Fund and MidCap Growth Fund
invest in equity securities and equity equivalent securities (preferred stocks,
convertible securities and warrants and other stock purchase rights). Both Funds
normally invest at least 65% of their assets in medium-sized U.S. companies.
Both MidCap Growth Fund and MidCap Opportunities Fund are subject to risks
associated with investing primarily in equity securities, including market risk,
issuer risk, credit risk, price volatility risk and market trend risk. Market
risk is the risk that securities may decline in value due to factors affecting
securities markets generally or particular industries. Issuer risk is the risk
that the value of a security may decline for reasons relating to the issuer,
such as changes in the financial condition of the issuer. Credit risk is the
risk that an issuer may not be able to meet its financial obligations when due,
including payments on outstanding debt. Market trend risk is the risk that the
market may not favor the mid-cap growth securities in which the Fund invests.
The market could instead favor value-oriented stocks or large or small company
stocks, or may not favor equities at all. While equities may offer the potential
for greater long-term growth than most debt securities, they generally have
higher volatility.
Investment in mid-cap companies may involve greater risk than is
customarily associated with securities of larger, more established companies.
Mid-cap companies may experience relatively higher growth rates and higher
failure rates than do larger companies. Mid-cap companies may be more
susceptible to price swings than larger companies because they have fewer
financial resources, more limited product and market diversification and many
are dependent on a few key managers.
INABILITY TO SELL SECURITIES. The securities of the mid-sized companies in
which both Funds invest may trade in lower volume and may be less liquid than
securities of larger, more established companies. Either Fund could lose money
if it cannot sell a security at the time and price that would be most beneficial
to the Fund.
INITIAL PUBLIC OFFERINGS. Both Funds are permitted to invest in initial
public offerings. When a Fund's asset base is small, the impact of such
investments on a Fund's return will be magnified. As a Fund's assets grow, the
effect of a Fund's investment in initial public offerings on a Fund's total
return may decline.
PORTFOLIO TURNOVER. Each Fund is generally expected to engage in frequent
and active trading of portfolio securities to achieve its investment objective.
A high portfolio turnover rate involves greater expenses to a Fund, including
brokerage commissions and other transaction costs, and is likely to generate
more taxable short-term gains for shareholders which may have an adverse effect
on the performance of the Fund. For the fiscal period ended May 31, 2001, the
portfolio turnover rate for MidCap Growth Fund was 262%; and the portfolio
turnover rate for MidCap Opportunities Fund was 182%.
TEMPORARY DEFENSIVE STRATEGIES. When the Adviser anticipates unusual market
or other conditions, the Fund may temporarily depart from its principal
investment strategies as a defensive measure. To the extent a Fund is engaged in
temporary defensive investments, it will not be pursuing its investment
objective.
9
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 MidCap
Opportunities Fund, see "Appendix C: Additional Information Regarding MidCap
Opportunities Fund."
MANAGEMENT FEES
MidCap Growth Fund pays an annual management fee of 0.75% of the Fund's
average daily net assets. MidCap Opportunities Fund pays an annual management
fee of 1.00% of the Fund's average daily net assets.
ADMINISTRATION FEES
MidCap Opportunities Fund pays an administration fee to ING Pilgrim Group,
LLC equal to 0.10% of the Fund's average daily net assets. MidCap Growth Fund
does not pay an administration fee.
DISTRIBUTION AND SERVICE FEES
The distribution (12b-1) fee and service fees for Class B and Class C
shares of MidCap Growth Fund are, in the aggregate, the same as those of the
corresponding classes of MidCap Opportunities Fund. The distribution and service
fees for Class A shares of MidCap Growth Fund are 0.05% higher than those of
Class A shares of MidCap Opportunities Fund (0.35% verses 0.30%). Each Fund pays
a service fee of 0.25% of the Fund's average daily net assets for its Class Q
shares.
EXPENSE LIMITATION ARRANGEMENTS
Expense limitation agreements are in place for both funds. Under the terms
of the expense limitation agreements, ING Pilgrim has agreed to limit the
expenses of the Funds, excluding interest, taxes, brokerage and extraordinary
expenses, subject to possible recoupment by ING Pilgrim within 3 years.
The current expense limitation agreement for MidCap Growth Fund provides
that it will remain in effect through at least October 31, 2002. There can be no
assurance that the expense limitation agreement will be continued after that
date. The expense limitations for Class A, Class B, Class C and Class Q of
MidCap Growth Fund are 1.60%, 2.25%, 2.25% and 1.50%, respectively. Currently,
MidCap Growth Fund's expenses are below those set by the expense limitation
agreement. The Fund is in a recoupment period in which, pursuant to the terms of
the expense limitation agreement, it is required to reimburse ING Pilgrim the
amounts previously waived up to the expense limit.
ING Pilgrim has entered into an expense limitation agreement with MidCap
Opportunities Fund. The current expense limitation agreement for MidCap
Opportunities Fund provides that it will become effective on January 1, 2001 and
will remain in effect through at least January 1, 2004. There can be no
assurance that the expense limitation agreement will be continued after that
date. The expense limitations for Class A, Class B, Class C and Class Q of
MidCap Opportunities Fund are 1.50%, 2.20%, 2.20%, and 1.35%, respectively.
EXPENSE TABLE
The current expenses of each of the Funds and estimated PRO FORMA expenses
after giving effect to the proposed Reorganization are shown in the following
table. Expenses of the Funds are based upon the annual operating expenses
incurred by Class A, Class B, Class C and Class Q shares for the fiscal period
ended May 31, 2001. PRO FORMA fees show estimated fees of MidCap Opportunities
Fund after giving effect to the proposed Reorganization. PRO FORMA numbers are
estimated in good faith and are hypothetical.
10
ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from Fund assets, shown as a ratio of expenses to
average daily net assets)(1)
DISTRIBUTION
(12b-1) AND FEE
SHAREHOLDER TOTAL FUND WAIVER
MANAGEMENT SERVICING OTHER OPERATING BY NET FUND
FEES FEES(2) EXPENSES EXPENSES ADVISER(3) EXPENSES
---- ------- -------- -------- ---------- --------
CLASS A
MidCap Growth Fund 0.75% 0.35% 0.34% 1.44% 0.01%(4) 1.45%
MidCap Opportunities Fund 1.00% 0.30% 0.67% 1.97% -- 1.97%
MidCap Opportunities Fund
- After the Reorganization
(PRO FORMA) 1.00% 0.30% 0.43% 1.73% -0.23% 1.50%
CLASS B
MidCap Growth Fund 0.75% 1.00% 0.34% 2.09% 0.01%(4) 2.10%
MidCap Opportunities Fund 1.00% 1.00% 0.67% 2.67% -- 2.67%
MidCap Opportunities Fund
- After the Reorganization
(PRO FORMA) 1.00% 1.00% 0.43% 2.43% -0.23% 2.20%
CLASS C
MidCap Growth Fund 0.75% 1.00% 0.34% 2.09% 0.01%(4) 2.10%
MidCap Opportunities Fund 1.00% 1.00% 0.67% 2.67% -- 2.67%
MidCap Opportunities Fund
- After the Reorganization
(PRO FORMA) 1.00% 1.00% 0.43% 2.43% -0.23% 2.20%
CLASS Q
MidCap Growth Fund 0.75% 0.25% 0.18% 1.18% 0.01%(4) 1.19%
MidCap Opportunities Fund 1.00% 0.25% 0.48% 1.73% -- 1.73%
MidCap Opportunities Fund
- After the Reorganization
(PRO FORMA) 1.00% 0.25% 0.27% 1.52% -0.17% 1.35%
- ----------
(1) The fiscal year end for each Fund is May 31.
(2) As a result of distribution (Rule 12b-1) fees, a long term investor may pay
more than the economic equivalent of the maximum sales charge allowed by
the Rules of the National Association of Securities Dealers, Inc.
(3) ING Pilgrim has entered into an expense limitation agreement with each Fund
under which it will limit the expenses of the Funds (excluding interest,
taxes, brokerage and extraordinary expenses, subject to possible
reimbursement to ING Pilgrim within three years) to 1.50%, 2.20%, 2.20% and
1.35% for Class A, Class B, Class C and Class Q shares, respectively, of
MidCap Opportunities Fund; and 1.60%, 2.25%, 2.25% and 1.50% for Class A,
Class B, Class C and Class Q shares, respectively, of MidCap Growth Fund.
ING Pilgrim has agreed that that the expense limitations will apply through
January 1, 2004 with respect to MidCap Opportunities Fund and October 31,
2002 with respect to MidCap Growth Fund. There can be no assurance that the
expense limitation agreements will remain in effect thereafter.
(4) Amount recouped by ING Pilgrim pursuant to the expense limitation agreement
between the Fund and ING Pilgrim.
11
Following the Reorganization and in the ordinary course of business as a
mutual fund, certain holdings of MidCap Growth Fund that are transferred to
MidCap Opportunities Fund in connection with the Reorganization may be sold.
Such sales may result in increased transaction costs for MidCap Opportunities
Fund, and the realization of taxable gains or losses for MidCap Opportunities
Fund.
EXAMPLES. The following examples are intended to help you compare the cost
of investing in each Fund and the combined Fund. The examples assume that you
invest $10,000 in each Fund and in the combined Fund after the Reorganization
for the time periods indicated. The examples also assume that your investment
has a 5% return each year and that each Fund's operating expenses remain the
same. The 5% return is an assumption and is not intended to portray past or
future investment results. Based on the above assumptions, you would pay the
following expenses if you redeem your shares at the end of each period shown.
Your actual costs may be higher or lower.
You would pay the following expenses if you redeemed your shares:
MIDCAP GROWTH FUND MIDCAP OPPORTUNITIES FUND
---------------------------------------- ---------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
CLASS A $713 $1,004 $1,317 $2,200 $763 $1,158 $1,576 $2,739
CLASS B $712 $ 955 $1,324 $2,255* $770 $1,129 $1,615 $2,834*
CLASS C $312 $ 655 $1,124 $2,421 $370 $ 829 $1,415 $3,003
CLASS Q $120 $ 375 $ 649 $1,432 $176 $ 545 $ 939 $2,041
PRO FORMA: THE FUNDS COMBINED**
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
CLASS A $719 $1,045 $1,418 $2,462
CLASS B $723 $1,013 $1,453 $2,557
CLASS C $323 $ 713 $1,253 $2,730
CLASS Q $137 $ 446 $ 796 $1,783
You would pay the following expenses if you did not redeem your shares:
MIDCAP GROWTH FUND MIDCAP OPPORTUNITIES FUND
--------------------------------------- --------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
CLASS A $713 $1,004 $1,317 $2,200 $763 $1,158 $1,576 $2,739
CLASS B $212 $ 655 $1,124 $2,255* $270 $ 829 $1,415 $2,834*
CLASS C $212 $ 655 $1,124 $2,421 $270 $ 829 $1,415 $3,003
CLASS Q $120 $ 375 $ 649 $1,432 $176 $ 545 $ 939 $2,041
PRO FORMA: THE FUNDS COMBINED**
--------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
CLASS A $719 $1,045 $1,418 $2,462
CLASS B $223 $ 713 $1,253 $2,557
CLASS C $223 $ 713 $1,253 $2,730
CLASS Q $137 $ 446 $ 796 $1,783
- ----------
* The ten year calculations for Class B shares assume conversion of the Class
B shares to Class A shares at the end of the end of the eighth year
following the date of purchase.
** Estimated.
12
GENERAL INFORMATION
Class A shares of MidCap Opportunities Fund issued to a shareholder in
connection with the Reorganization will not be subject to an initial sales
charge, but Class B and Class C shares will be subject to the same contingent
deferred sales charge, if any, applicable to the corresponding Class of shares
of MidCap Growth Fund held by that shareholder immediately prior to the
Reorganization. Class Q shares are not subject to an initial sales charge or
contingent deferred sales charge.
In addition, the period that the shareholder held shares of MidCap Growth
Fund will be included in the holding period of MidCap Opportunities Fund shares
for purposes of calculating any contingent deferred sales charge. Similarly,
Class B shares of MidCap Opportunities 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 MidCap Growth Fund were purchased by
the shareholder. Purchases of shares of MidCap Opportunities Fund will be
subject to the sales load structure described in the table below on new
investments. This is the same sales load structure that is currently in effect
for MidCap Growth Fund.
TRANSACTION FEES ON NEW INVESTMENTS
(fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Q
------- ------- ------- -------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) 5.75%(1) None None None
Maximum deferred sales charge (load) (as a
percentage of the lower of original purchase
price or redemption proceeds) None(2) 5.00%(3) 1.00%(4) None
- ----------
(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 and "Special Rules for
Class A Shares of MidCap Growth Fund" below.
(3) Imposed upon redemptions within 6 years of purchase. The fee has scheduled
reductions after the first year. See "Class B Shares: Deferred Sales Charge
Alternative" in Appendix C and "Shareholder Guide-- Sales Charge
Calculation" in the Pilgrim Prospectus.
(4) Imposed upon redemptions within 1 year from purchase.
Neither MidCap Opportunities Fund nor MidCap Growth Fund have any
redemption fees, exchange fees or sales charges on reinvested dividends.
13
INFORMATION ABOUT THE REORGANIZATION
THE REORGANIZATION AGREEMENT
The terms and conditions under which the proposed transaction may be
consummated are set forth in the Reorganization Agreement. Significant
provisions of the Reorganization Agreement are summarized below; however, this
summary is qualified in its entirety by reference to the Reorganization
Agreement, a copy of which is attached as Appendix B.
The Reorganization Agreement provides for (i) the transfer, as of the
Closing Date, of all of the assets of MidCap Growth Fund in exchange for shares
of beneficial interest of MidCap Opportunities Fund and the assumption by MidCap
Opportunities Fund of MidCap Growth Fund's liabilities; and (ii) the
distribution of shares of MidCap Opportunities Fund to shareholders of MidCap
Growth Fund, as provided for in the Reorganization Agreement. MidCap Growth Fund
will then be liquidated.
After the Reorganization, each shareholder of MidCap Growth Fund will own
shares of MidCap Opportunities Fund having an aggregate value equal to the
aggregate value of each respective Class of shares in MidCap Growth Fund held by
that shareholder as of the Closing Date. Shareholders of each Class of shares of
MidCap Growth Fund will receive the same Class of shares of MidCap Opportunities
Fund. In the interest of economy and convenience, shares of MidCap Opportunities
Fund generally will not be represented by physical certificates, unless
requested in writing.
Until the Closing Date, shareholders of MidCap Growth Fund will continue to
be able to redeem their shares. Redemption requests received after the Closing
Date will be treated as requests received by MidCap Opportunities Fund for the
redemption of its shares.
The obligations of the Funds under the Reorganization Agreement are subject
to various conditions, including approval of the shareholders of MidCap Growth
Fund. The Reorganization Agreement also requires that each Fund 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 several reorganizations that are proposed
among various Pilgrim Funds. The Pilgrim Funds complex has grown in recent years
through the addition of many funds. Management of the Pilgrim Funds have
proposed the consolidation of several Pilgrim Funds that they believe have
similar or compatible investment policies. The proposed reorganizations are
designed to reduce the substantial overlap in funds in the Pilgrim Funds
complex, thereby eliminating inefficiencies arising from having similar
portfolios in the same fund group and confusion about overlapping funds. ING
Pilgrim also believes that the reorganizations may benefit fund shareholders by
resulting in surviving funds with a greater asset base. This is expected to
provide greater investment opportunities for the surviving funds and the
potential to take larger portfolio positions.
The proposed Reorganization was presented to the Board of Trustees of
MidCap Growth Fund for consideration at a meeting held on November 2, 2001. For
the reasons discussed below, the Trustees, including all of the Trustees who are
not "interested persons" (as defined in the Investment Company Act of 1940, as
amended) of MidCap Growth Fund, determined that the interests of the
shareholders of MidCap Growth Fund will not be diluted as a result of the
proposed Reorganization, and that the proposed Reorganization is in the best
interests of MidCap Growth Fund and its shareholders.
The Reorganization will allow MidCap Growth Fund's shareholders to continue
to participate in a professionally managed portfolio that seeks to achieve an
objective of long-term capital appreciation. As shareholders of MidCap
Opportunities Fund, 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 current Pilgrim Funds and
their available classes is contained in Appendix D.
14
BOARD CONSIDERATIONS
The Board of Trustees of MidCap Growth Fund, in recommending the proposed
transaction, considered a number of factors, including the following:
* the plans of management to reduce the overlap in funds in the Pilgrim
Fund complex;
* the relative investment performance of MidCap Opportunities Fund as
compared to MidCap Growth Fund;
* expense ratios and information regarding fees and expenses of MidCap
Growth Fund and MidCap Opportunities Fund, including the expense
limitation arrangements offered by ING Pilgrim;
* the current management team of MidCap Opportunities Fund and MidCap
Growth Fund, which has managed MidCap Opportunities Fund since its
inception, rendering that Fund a better indication of the current
portfolio managers' track record;
* whether the Reorganization would dilute the interests of MidCap Growth
Fund's current shareholders;
* the similarity of the investment objectives, strategies, and
restrictions of MidCap Opportunities Fund with those of MidCap Growth
Fund;
* the costs to be borne by MidCap Growth Fund, MidCap Opportunities Fund
and ING Pilgrim; and
* the tax consequences of the Reorganization to MidCap Growth Fund and
its shareholders, including the tax-free nature of the transaction.
The Board of Trustees also considered the future potential benefits to ING
Pilgrim in that its costs to administer both Funds may be reduced if the
Reorganization is approved.
THE TRUSTEES OF MIDCAP GROWTH FUND RECOMMEND THAT SHAREHOLDERS APPROVE THE
REORGANIZATION WITH MIDCAP OPPORTUNITIES FUND.
TAX CONSIDERATIONS
The Reorganization is intended to qualify for Federal income tax purposes
as a tax-free reorganization under Section 368 of the Internal Revenue Code of
1986, as amended. Accordingly, pursuant to this treatment, neither MidCap Growth
Fund nor its shareholders, nor MidCap Opportunities Fund nor its shareholders,
are expected to recognize any gain or loss for federal income tax purposes from
the transactions contemplated by the Reorganization Agreement. As a condition to
the closing of the Reorganization, the Funds will receive an opinion from the
law firm of Dechert to the effect that the Reorganization will qualify as a
tax-free reorganization for Federal income tax purposes. That opinion will be
based in part upon certain assumptions and upon certain representations made by
the Funds.
Immediately prior to the Reorganization, MidCap 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 MidCap 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 MidCap
Growth Fund's shareholders.
15
EXPENSES OF THE REORGANIZATION
ING Pilgrim 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 SEC. Of the Reorganization expenses allocated
to the Funds, each Fund will bear a ratable portion based on its relative net
asset value immediately before the Closing Date.
ADDITIONAL INFORMATION ABOUT THE FUNDS
FORM OF ORGANIZATION
MidCap Opportunities Fund is a series of Pilgrim Equity Trust, an open-end
diversified, management investment company organized as a Massachusetts business
trust. MidCap Growth Fund is a series of Pilgrim Mutual Funds, an open-end
diversified, management investment company organized as a Delaware business
trust. Pilgrim Equity Trust and Pilgrim Mutual Funds are each governed by a
Board of Trustees consisting of the same nine members. For more information
about the history of the Funds, see the SAI.
DISTRIBUTOR
ING Pilgrim Securities, Inc. (the "Distributor"), whose address is 7337
East Doubletree Ranch Road, Scottsdale, Arizona 85258-2034, is the principal
distributor for both Funds.
MidCap Opportunities Fund also offers Class I shares, which have different
sales charges and other expenses that may affect their performance. You can
obtain more information about this other share Class by calling 1-800-992-0180.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund pays dividends from net investment income and net capital gains,
if any, on 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 MidCap Growth Fund's
shareholders, then as soon as practicable before the Closing Date, MidCap Growth
Fund will pay its shareholders a cash distribution of substantially all
undistributed net investment income and undistributed realized net capital
gains.
16
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of each
of the Funds as of May 31, 2001, and on a PRO FORMA basis as of May 31, 2001,
giving effect to the Reorganization:
NET ASSET
VALUE SHARES
NET ASSETS PER SHARE OUTSTANDING
---------- --------- -----------
MIDCAP GROWTH FUND
Class A $ 98,529,696 $ 15.35 6,417,555
Class B $ 85,111,123 $ 17.90 4,754,523
Class C $156,528,141 $ 14.05 11,138,747
Class Q $ 16,412,164 $ 19.49 842,194
MIDCAP OPPORTUNITIES FUND
Class A $ 24,264,616 $ 14.58 1,664,228
Class B $ 28,447,745 $ 14.30 1,989,367
Class C $ 18,900,592 $ 14.24 1,327,151
Class I $ 52,007,043 $ 14.73 3,531,434
Class Q $ 3,071,306 $ 14.63 209,901
PRO FORMA - MIDCAP OPPORTUNITIES FUND
INCLUDING MIDCAP GROWTH FUND
Class A $122,794,312 $ 14.58 8,422,095
Class B $113,558,868 $ 14.30 7,941,194
Class C $175,428,733 $ 14.24 12,319,296
Class I $ 52,007,043 $ 14.73 3,531,454
Class Q $ 19,483,470 $ 14.63 1,331,717
PORTFOLIO MANAGERS OF MIDCAP OPPORTUNITIES FUND
The following individuals share responsibility for the day-to-day
management of MidCap Opportunities Fund:
* Mary Lisanti, Executive Vice President and Chief Investment Officer --
Domestic Equities of ING Pilgrim, has served as Senior Portfolio
Manager of MidCap Opportunities Fund since the Fund's inception. Prior
to joining ING Pilgrim in October 1999, Ms. Lisanti was Executive Vice
President and Chief Investment Officer -- Domestic Equities with
Northstar Investment Management Corp., which subsequently merged into
ING Pilgrim. From 1996 to 1998, Ms. Lisanti was a Portfolio Manager at
Strong Capital Management. From 1993 to 1996, Ms. Lisanti was a
Managing Director and Head of Small- and Mid-Capitalization Equity
Strategies at Bankers Trust Corp.
* Jeffrey Bernstein, Senior Vice President of ING Pilgrim, has served as
a Senior Portfolio Manager of MidCap Opportunities Fund since the
Fund's inception. Prior to joining ING Pilgrim in October 1999, Mr.
Bernstein was a Portfolio Manager at Northstar Investment Management
Corp., which subsequently merged into ING Pilgrim. Prior to May 1998,
Mr. Bernstein was a Portfolio Manager at Strong Capital Management.
From 1995 to 1997, Mr. Bernstein was a Portfolio Manager at Berkeley
Capital.
17
GENERAL INFORMATION ABOUT THE PROXY STATEMENT
SOLICITATION OF PROXIES
Solicitation of proxies is being made primarily by the mailing of the
Notice and this Proxy Statement with its enclosures on or about February 5,
2002. Shareholders of MidCap 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 and
its affiliates, without additional compensation, may solicit proxies in person
or by telephone, telegraph, facsimile, or oral communication.
MidCap 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.
A shareholder may revoke the accompanying proxy card at any time prior to
its use by filing with MidCap Growth Fund a written revocation or duly executed
proxy card bearing a later date. In addition, any shareholder who attends the
Special Meeting in person may vote by ballot at the Special Meeting, thereby
canceling any proxy previously given. The persons named in the accompanying
proxy card will vote as directed by the proxy card, but in the absence of voting
directions in any proxy card that is signed and returned, they intend to vote
"FOR" the Reorganization proposal and may vote in their discretion with respect
to other matters not now known to the Board of Trustees of MidCap Growth Fund
that may be presented at the Special Meeting.
VOTING RIGHTS
As a shareholders of MidCap Growth Fund, you are entitled to one vote for
each whole share held as to any matter on which you are entitled to vote and for
each fractional share that you own, you shall be entitled to a proportionate
fractional vote. Shares have no preemptive or subscription rights.
Only shareholders of MidCap Growth Fund at the close of business on January
11, 2002 (the "Record Date") will be entitled to be present and give voting
instructions for MidCap Growth Fund at the Special Meeting with respect to their
shares owned as of the Record Date. As of the Record Date, __________ shares of
MidCap Growth Fund were outstanding and entitled to vote.
Approval of the Reorganization Agreement requires the vote, if a quorum is
present, of the lesser of (i) 67% or more of the shares, provided that 50% of
the shares are present in person or represented by proxy at the Special Meeting,
or (ii) a majority of the shares. The Declaration of Trust defines a "quorum" as
one-third of the shares entitled to vote.
If a shareholder abstains from voting as to any matter, or if a broker
returns a "non-vote" proxy, indicating a lack of authority to vote on a matter,
the shares represented by the abstention or non-vote will be deemed present at
the Special Meeting for purposes of determining a quorum. However, abstentions
and broker non-votes will not be deemed represented at the Special Meeting for
purposes of calculating the vote on any matter. As a result, an abstention or
broker non-vote will not have the same effect as a vote against the
Reorganization.
MidCap Growth Fund expects that, before the Special Meeting, broker-dealer
firms holding shares of the Fund in "street name" for their customers will
request voting instructions from their customers and beneficial owners. If these
instructions are not received by the date specified in the broker-dealer firms'
proxy solicitation materials, MidCap Growth Fund understands that the
broker-dealers that are members of the New York Stock Exchange may vote on the
items to be considered at the Special Meeting on behalf of their customers and
beneficial owners under the rules of the New York Stock Exchange.
18
To the knowledge of MidCap Opportunities Fund, as of January __, 2002, no
current Trustee owned 1% or more of the outstanding shares of MidCap
Opportunities Fund, and the officers and Trustees owned, as a group, less than
1% of the shares of MidCap Opportunities Fund.
Appendix E hereto lists the persons that, as of January __, 2002, owned
beneficially or of record 5% or more of the outstanding shares of any Class of
MidCap Growth Fund or MidCap Opportunities Fund.
OTHER MATTERS TO COME BEFORE THE SPECIAL MEETING
MidCap Growth Fund does not know of any matters to be presented at the
Special Meeting other than those described in this Proxy Statement/Prospectus.
If other business should properly come before the Special Meeting, the
proxyholders will vote thereon in accordance with their best judgment.
SHAREHOLDER PROPOSALS
MidCap Growth Fund is not required to hold regular annual meetings and, in
order to minimize its costs, does not intend to hold meetings of shareholders
unless so required by applicable law, regulation, regulatory policy or if
otherwise deemed advisable by MidCap 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 will furnish, without charge, a copy of the most recent Annual
Report regarding either of the Funds and the most recent Semi-Annual Report
succeeding the Annual Report, if any, on request. Requests for such reports
should be directed to the Fund at Pilgrim Funds, 7337 East Doubletree Ranch
Road, Scottsdale, Arizona 85258-2034 or by calling 1-800-992-0180.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE SPECIAL 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.
Kimberly A. Anderson,
Vice President and Secretary
February 5, 2002
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
19
APPENDIX A
Set forth below is an excerpt from Pilgrim MidCap Opportunities Fund's
Annual Report, dated May 31, 2001, regarding the Fund's performance.
Portfolio Management Team: Mary Lisanti, Executive Vice-President and Portfolio
Manager; Jeff Bernstein, Senior Vice President and Portfolio Manager, ING
Pilgrim Investments, LLC.
Goal: The Fund seeks long-term capital appreciation by investing primarily in
the common stock of mid-sized U.S. companies that the Portfolio Manager feels
have above average prospects for growth.
Market Overview: The year 2001 began with surprise rate cut by the Federal
Reserve, and the Fed's influence on the economy and the stock market continued
to be the story of the year. At this time last year, GDP was growing close to
6%, but the effect of 175 basis points in interest rate hikes dramatically
slowed growth in the second half of 2000. By the fourth quarter of 2000, US GDP
had slowed to a 1.0% growth rate, and the United States faced the prospect of
its first recession since 1990-91. Since the start of the year 2001, the Fed has
cut interest rates by 250 basis points, as the lagging economic indicators and
corporate earnings pointed to a further deterioration in the economy.
The deterioration in the growth of earnings was most apparent in the fastest
growing sectors of the economy, namely technology and telecommunications.
Healthcare stocks also struggled as investors sought the relative safety of
value stocks, in consumer-related stocks, energy, and basic materials. The
technology-heavy NASDAQ Composite was the hardest hit benchmark with a decline
of 14.57% during the first five months of the year. While smaller cap stocks
showed some strength with the Russell 2000 Index gaining 3.29%, the performance
of other benchmarks was mixed. The Dow Jones Industrials gained 1.16% in 2001
and the S&P Midcap Index rose 1.38%, while the S&P 500 dipped 4.37%. While there
was some evidence of a recovery in stocks, the signs of a classic bear market
were apparent, as the S&P 500 dropped 26% from peak to trough, while the NASDAQ
suffered a decline of 68%.
Performance: For the five months ended May 31, 2001, the Fund's Class A shares,
excluding sales charges, provided a total return of -23.74%, compared to the S&P
Midcap 400 Index, which returned 1.38% over the same period.
Portfolio Specifics: The Fund struggled in a market environment that favored
value stocks over growth-oriented strategies. While the Fund started the year
with weightings in "defensive" sectors such as energy, healthcare, and consumer
stocks, we found the opportunity to invest in higher growth companies at
attractive valuations. Thus, we increased our weightings in selected technology
industries and companies.
For the year to date period, the Fund has seen the biggest impact from the
"Greying of America," "Life on the Net," and "New Age of Media" themes, while
the strongest contributors among the individual stocks were Cendant Corporation,
Conseco Inc., Intersil Corporation, and TyCom Limited.
Market Outlook: The months of April and May gave some evidence to our belief
that the higher end of the growth market was close to a bottom. We still believe
that the current economic decline is distinct from the last two recessions of
1980-81 and 1990-1991 in that this slowdown was not caused by structural
imbalances. Rather, this slowdown was caused by a decline in capital spending,
centered largely around technology. Technology spending has been slowing for
close to a year in the wake of the "Y2K" boom and the Internet boom and bust,
and incremental data suggest that these excesses have largely been wrung out of
the system. Although we entered the current economic slowdown with unprecedented
speed, the aggressive rate cuts by the Federal Reserve and the lack of excess
inventory in the system could imply a more rapid recovery than in the past.
Unless the current economic slowdown stretches beyond the end of 2001, we
believe that we are very close to the bottom--if not beyond it. Some parts of
the market, in particular technology, had priced in significantly lower growth
for several years, and if the recovery plays out over the second half of the
year, then the market will continue its recent good performance. We believe that
this market is more similar to the 1990-1991 time frame than the 1994-1995 or
1998 corrections; the values seen at the bottom in the 1990-1991 bear market
turned out to be the lows for the decade on many stocks. Thus, we are taking
advantage of market volatility to initiate or add to positions in high quality
growth companies. Our focus is on companies who we believe can deliver
above-average earnings growth in 2002 and beyond, and we are particularly
focused on those companies who are improving their business models through this
downturn and have opportunities for significant improvement in profitability
ahead of them.
A-1
8/31/98 5/31/99 5/31/00 5/31/01
------- ------- ------- -------
Pilgrim MidCap Opportunities Fund Class A With Sales Charge $ 9,425 $14,581 $24,651 $18,878
Pilgrim MidCap Opportunities Fund Class A Without Sales Charge $10,000 $15,470 $26,155 $20,029
S&P MidCap 400 Index $10,000 $14,218 $17,268 $19,154
Average Annual Total Returns for
the Periods Ended May 31, 2001
-------------------------------
Since Inception
1 Year 8/20/98
------ -------
Including Sales Charge:
Class A(1) -27.87% 25.65%
Class B(2) -27.42% 26.89%
Class C(3) -24.64% 27.45%
Class I -23.06% 28.78%
Excluding Sales Charge:
Class A -23.47% 28.35%
Class B -24.00% 27.59%
Class C -23.95% 27.45%
Class I -23.06% 28.78%
S&P MidCap 400 Index 10.92% 26.66%(4)
Based on a $10,000 initial investment, the graph and table above illustrate the
total return of Pilgrim MidCap Opportunities Fund against the S&P MidCap 400
Index. The Index has an inherent performance advantage over the Fund since it
has no cash in its portfolio, imposes no sales charges and incurs no operating
expenses. An investor cannot invest directly in an index. The Fund's performance
is shown both with and without the imposition of sales charges.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Fund. Total returns would have been
lower had there been no waiver 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 report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio managers, only
through the end of the period as stated on the cover. The portfolio managers'
views are subject to change at any time based on market and other conditions.
Fund 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% and 3%,
respectively, for the 1 year and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1% for the 1
year return.
(4) Since inception performance for the index is shown from 9/1/98.
Principal Risk Factor(s): Exposure to financial and market risks that accompany
investments in equities. In exchange for higher growth potential, investing in
stocks of smaller companies may entail greater price volatility than investing
in stocks of larger companies.
A-2
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 Equity Trust, a
Massachusetts business trust with its principal place of business at 7337 East
Doubletree Ranch Road, Scottsdale, Arizona 85258-2034, on behalf of its series,
Pilgrim MidCap Opportunities Fund (the "Acquiring Fund"), and Pilgrim Mutual
Funds, a Delaware business trust with its principal place of business at 7337
East Doubletree Ranch Road, Scottsdale, Arizona 85258-2034, on behalf of its
series, Pilgrim MidCap 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, Class B,
Class C and Class Q voting shares of beneficial interest of the Acquiring Fund
(the "Acquiring Fund Shares"), the assumption by the Acquiring Fund of all
liabilities of the Acquired Fund, and the distribution of the Acquiring Fund
Shares to the shareholders of the Acquired Fund in complete liquidation of the
Acquired Fund as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are series of open-end,
registered investment companies of the management type and the Acquired Fund
owns securities which generally are assets of the character in which the
Acquiring Fund is permitted to invest;
WHEREAS, the Trustees of Pilgrim Equity Trust have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the Acquiring Fund and its shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not be
diluted as a result of this transaction; and
WHEREAS, the Trustees of the Pilgrim Mutual Funds have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of all liabilities of the Acquired Fund by the Acquiring Fund is
in the best interests of the Acquired Fund and its shareholders and that the
interests of the existing shareholders of the Acquired Fund would not be diluted
as a result of this transaction;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the requisite approval of the Acquired Fund shareholders
and the other terms and conditions herein set forth and on the basis of the
representations and warranties contained herein, the Acquired Fund agrees to
transfer all of the Acquired Fund's assets, as set forth in paragraph 1.2, to
the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor: (i) to
deliver to the Acquired Fund the number of full and fractional Class A, Class B,
Class C, and Class Q Acquiring Fund Shares determined by dividing the value of
the Acquired Fund's net assets with respect to each class, computed in the
manner and as of the time and date set forth in paragraph 2.1, by the net asset
value of one Acquiring Fund Share of the same class, computed in the manner and
as of the time and date set forth in paragraph 2.2; and (ii) to assume all
liabilities of the Acquired Fund, as set forth in paragraph 1.3. Such
transactions shall take place at the closing provided for in paragraph 3.1 (the
"Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all assets and property, including, without limitation, all
cash, securities, commodities and futures interests and dividends or interests
receivable that are owned by the Acquired Fund and any deferred or prepaid
expenses shown as an asset on the books of the Acquired Fund on the closing date
provided for in paragraph 3.1 (the "Closing Date") (collectively, "Assets").
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund shall
also assume all of the liabilities of the Acquired Fund, whether accrued or
contingent, known or unknown, existing at the Valuation Date, as defined in
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paragraph 2.1 (collectively, "Liabilities"). On or as soon as practicable prior
to the Closing Date, the Acquired Fund will declare and pay to its shareholders
of record one or more dividends and/or other distributions so that it will have
distributed substantially all (and in no event less than 98%) of its investment
company taxable income (computed without regard to any deduction for dividends
paid) and realized net capital gain, if any, for the current taxable year
through the Closing Date.
1.4. Immediately after the transfer of assets provided for in paragraph
1.1, the Acquired Fund will distribute to the Acquired Fund's shareholders of
record with respect to each class of its shares, determined as of immediately
after the close of business on the Closing Date (the "Acquired Fund
Shareholders"), on a pro rata basis within that class, the Acquiring Fund Shares
of the same class received by the Acquired Fund pursuant to paragraph 1.1, and
will completely liquidate. Such distribution and liquidation will be
accomplished, with respect to each class of the Acquired Fund's shares, by the
transfer of the Acquiring Fund Shares then credited to the account of the
Acquired Fund on the books of the Acquiring Fund to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund Shareholders.
The aggregate net asset value of Class A, Class B, Class C and Class Q Acquiring
Fund Shares to be so credited to Class A, Class B, Class C and Class Q Acquired
Fund Shareholders shall, with respect to each class, be equal to the aggregate
net asset value of the Acquired Fund shares of that same class owned by such
shareholders on the Closing Date. All issued and outstanding shares of the
Acquired Fund will simultaneously be canceled on the books of the Acquired Fund,
although share certificates representing interests in Class A, Class B, Class C
and Class Q shares of the Acquired Fund will represent a number of the same
class of Acquiring Fund Shares after the Closing Date, as determined in
accordance with Section 2.3. The Acquiring Fund shall not issue certificates
representing the Class A, Class B, Class C and Class Q Acquiring Fund Shares in
connection with such exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent, as defined in paragraph 3.3.
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 U.S. Securities and Exchange Commission (the
"Commission"), any state securities commission, and any federal, state or local
tax authorities or any other relevant regulatory authority, is and shall remain
the responsibility of the Acquired Fund.
2. VALUATION
2.1. The value of the Assets shall be the value computed as of immediately
after the close of business of the New York Stock Exchange and after the
declaration of any dividends on the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures in the
then-current prospectus and statement of additional information with respect to
the Acquiring Fund, and valuation procedures established by the Acquiring Fund's
Board of Trustees.
2.2. The net asset value of a Class A, Class B, Class C and Class Q
Acquiring Fund Share shall be the net asset value per share computed with
respect to that class as of the Valuation Date, using the valuation procedures
set forth in the Acquiring Fund's then-current prospectus and statement of
additional and valuation procedures established by the Acquiring Fund's Board of
Trustees.
2.3. The number of the Class A, Class B, Class C and Class Q Acquiring Fund
Shares to be issued (including fractional shares, if any) in exchange for the
Acquired Fund's assets shall be determined with respect to each such class by
dividing the value of the net assets with respect to the Class A, Class B, Class
C and Class Q shares of the Acquired Fund, as the case may be, determined using
the same valuation procedures referred to in paragraph 2.1, by the net asset
value of an Acquiring Fund Share, determined in accordance with paragraph 2.2.
2.4. All computations of value shall be made by the Acquired Fund's
designated record keeping agent and shall be subject to review by Acquiring
Fund's record keeping agent and by each Fund's respective independent
accountants.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be April 19, 2002, or such other date as the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of immediately after the close of business on the
Closing Date unless otherwise agreed to by the parties. The close of business on
B-2
the Closing Date shall be as of 4:00 p.m., Eastern Time. The Closing shall be
held at the offices of the Acquiring Fund or at such other time and/or place as
the parties may agree.
3.2. The Acquired Fund shall direct State Street Bank and Trust Company --
Missouri, as custodian for the Acquired Fund (the "Custodian"), to deliver, at
the Closing, a certificate of an authorized officer stating that (i) the Assets
shall have been delivered in proper form to the Acquiring Fund within two
business days prior to or on the Closing Date, and (ii) all necessary taxes in
connection with the delivery of the Assets, including all applicable federal and
state stock transfer stamps, if any, have been paid or provision for payment has
been made. The Acquired Fund's portfolio securities represented by a certificate
or other written instrument shall be presented for examination by the Acquired
Fund Custodian to the custodian for the Acquiring Fund no later than five
business days preceding the Closing Date, and shall be transferred and delivered
by the Acquired Fund as of the Closing Date for the account of the Acquiring
Fund duly endorsed in proper form for transfer in such condition as to
constitute good delivery thereof. The Custodian shall deliver as of the Closing
Date by book entry, in accordance with the customary practices of any securities
depository, as defined in Rule 17f-4 under the Investment Company Act of 1940,
as amended (the "1940 Act") in which the Acquired Fund's Assets are deposited
and the Custodian, the Acquired Fund's portfolio securities and instruments
deposited with such depositories. The cash to be transferred by the Acquired
Fund shall be delivered by wire transfer of federal funds on the Closing Date.
3.3. The Acquired Fund shall direct DST Systems, Inc. (the "Transfer
Agent"), on behalf of the Acquired Fund, to deliver at the Closing a certificate
of an authorized officer stating that its records contain the names and
addresses of the Acquired Fund Shareholders and the number and percentage
ownership of outstanding Class A, Class B, Class C and Class Q shares owned by
each such shareholder immediately prior to the Closing. The Acquiring Fund shall
issue and deliver a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Secretary of the Acquiring Fund, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have
been credited to the Acquired Fund's account on the books of the Acquiring Fund.
At the Closing each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request.
3.4. In the event that on the Valuation Date (a) the New York Stock
Exchange or another primary trading market for portfolio securities of the
Acquiring Fund or the Acquired Fund shall be closed to trading or trading
thereupon shall be restricted, or (b) trading or the reporting of trading on
such Exchange or elsewhere shall be disrupted so that, in the judgment of the
Board of Trustees of the Acquired Fund or the Board of Trustees of the Acquiring
Fund, accurate appraisal of the value of the net assets of the Acquiring Fund or
the Acquired Fund 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 Pilgrim Mutual Funds on behalf of the
Acquired Fund, represents and warrants to Pilgrim Equity Trust as follows:
(a) The Acquired Fund is duly organized as a series of Pilgrim Mutual
Funds, which is a business trust duly organized, validly existing and in good
standing under the laws of the State of Delaware, with power under Pilgrim
Mutual Funds' Declaration of Trust to own all of its properties and assets and
to carry on its business as it is now being conducted;
(b) Pilgrim Mutual Funds 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;
B-3
(d) The current prospectus and statement of additional information of
the Acquired Fund and each prospectus and statement of additional information of
the Acquired Fund used during the three years previous to the date of this
Agreement conforms or conformed at the time of its use in all material respects
to the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the Commission thereunder and does not or did not at the time
of its use include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading;
(e) On the Closing Date, the Acquired Fund will have good and
marketable title to the Assets and full right, power, and authority to sell,
assign, transfer and deliver such Assets hereunder free of any liens or other
encumbrances, and upon delivery and payment for such Assets, the Acquiring Fund
will acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under the
1933 Act, other than as disclosed to the Acquiring Fund;
(f) The Acquired Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in (i) a material
violation of Pilgrim Mutual Fund's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
Pilgrim Mutual Funds, 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 Pilgrim Mutual Funds, 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 prior to the Closing Date;
(h) Except as otherwise disclosed in writing to and accepted by
Pilgrim Equity Trust, on behalf of the Acquiring Fund, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or, to its knowledge, threatened against
the 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. Pilgrim Mutual Funds, 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 Schedule of Investments of the Acquired Fund at
May 31, 2001 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 May 31, 2001, 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;
B-4
(l) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met (or will meet) the
requirements of Subchapter M of the Code for qualification as a regulated
investment company, has been (or will be) eligible to and has computed (or will
compute) its federal income tax under Section 852 of the Code, and will have
distributed all of its investment company taxable income and net capital gain
(as defined in the Code) that has accrued through the Closing Date, and before
the Closing Date will have declared dividends sufficient to distribute all of
its investment company taxable income and net capital gain for the period ending
on the Closing Date;
(m) All issued and outstanding shares of the Acquired Fund are, and on
the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by Pilgrim Mutual Funds and have been offered and sold in
every state and the District of Columbia in compliance in all material respects
with applicable registration requirements of the 1933 Act and state securities
laws. All of the issued and outstanding shares of the Acquired Fund will, at the
time of Closing, be held by the persons and in the amounts set forth in the
records of the Transfer Agent, on behalf of the Acquired Fund, as provided in
paragraph 3.3. The Acquired Fund does not have outstanding any options, warrants
or other rights to subscribe for or purchase any of the shares of the Acquired
Fund, nor is there outstanding any security convertible into any of the Acquired
Fund shares;
(n) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action, if
any, on the part of the Trustees of Pilgrim Mutual Funds, 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
instrument executed by an officer of Pilgrim Equity Trust, Pilgrim Equity Trust,
on behalf of the Acquiring Fund, represents and warrants to Pilgrim Mutual Funds
as follows:
(a) The Acquiring Fund is duly organized as a series of Pilgrim Equity
Trust, which is a business trust duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts, with power under
Pilgrim Equity Trust's Declaration of Trust to own all of its properties and
assets and to carry on its business as it is now being conducted;
(b) Pilgrim Equity Trust is a registered investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act and the registration of
the shares of the Acquired Fund under the 1933 Act, is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required by state
securities laws;
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(d) The current prospectus and statement of additional information of
the Acquiring Fund and each prospectus and statement of additional information
of the Acquiring Fund used during the three years previous to the date of this
Agreement conforms or conformed at the time of its use in all material respects
to the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the Commission thereunder and does not or did not at the time
of its use include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading;
(e) On the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens of other
encumbrances, except those liens or encumbrances as to which the Acquired Fund
has received notice and necessary documentation at or prior to the Closing;
(f) The Acquiring Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in (i) a material
violation of Pilgrim Equity Trust's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
Pilgrim Equity Trust, on behalf of the Acquiring Fund, is a party or by which it
is bound, or (ii) the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease, judgment
or decree to which Pilgrim Equity Trust, on behalf of the Acquiring Fund, is a
party or by which it is bound;
(g) Except as otherwise disclosed in writing to and accepted by
Pilgrim Mutual Funds, 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
Pilgrim Equity Trust, on behalf of the Acquiring Fund, or any of the Acquiring
Fund's properties or assets that, if adversely determined, would materially and
adversely affect the Acquiring Fund's financial condition or the conduct of the
Acquiring Fund's business. Pilgrim Equity Trust, on behalf of the Acquiring
Fund, knows of no facts which might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated;
(h) The Statement of Assets and Liabilities, Statements of Operations
and Changes in Net Assets and Schedule of Investments of the Acquiring Fund at
May 31, 2001 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 May 31, 2001, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquired Fund. For purposes of this subparagraph (i), a
decline in net asset value per share of the Acquiring Fund due to declines in
market values of securities in the Acquiring Fund's portfolio, the discharge of
Acquiring Fund liabilities, or the redemption of Acquiring Fund Shares by
shareholders of the Acquiring Fund, shall not constitute a material adverse
change;
(j) On the Closing Date, all Federal and other tax returns, dividend
reporting forms, and other tax-related reports of the Acquiring Fund required by
law to have been filed by such date (including any extensions) shall have been
filed and are or will be correct in all material respects, and all Federal and
other taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof, and to the best of the Acquiring Fund's knowledge no such return is
currently under audit and no assessment has been asserted with respect to such
returns;
(k) For each taxable year of its operation (including the taxable year
that includes the Closing Date), the Acquiring Fund has met (or will meet) the
requirements of Subchapter M of the Code for qualification as a regulated
investment company, has been eligible to (or will be 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;
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(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 (recognizing that, under Massachusetts law, it is theoretically
possible that shareholders of the Acquiring Fund could, under certain
circumstances, be held personally liable for obligations of the Acquiring Fund)
and have been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration requirements of
the 1933 Act and state securities laws. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or purchase
any Acquiring Fund Shares, nor is there outstanding any security convertible
into any Acquiring Fund Shares;
(m) The execution, delivery and performance of this Agreement will
have been fully authorized prior to the Closing Date by all necessary action, if
any, on the part of the Trustees of Pilgrim Equity Trust, on behalf of the
Acquiring Fund, and this Agreement will constitute a valid and binding
obligation of the Acquiring Fund, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(n) The Class A, Class B, Class C and Class Q Acquiring Fund Shares to
be issued and delivered to the Acquired Fund, for the account of the Acquired
Fund Shareholders, pursuant to the terms of this Agreement, will on the Closing
Date have been duly authorized and, when so issued and delivered, will be duly
and validly issued Acquiring Fund Shares, and will be fully paid and
non-assessable (recognizing that, under Massachusetts law, it is theoretically
possible that shareholders of the Acquiring Fund could, under certain
circumstances, be held personally liable for obligations of the Acquiring Fund);
(o) The information to be furnished by Pilgrim Equity Trust for use in
the registration statements, proxy materials and other documents that may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations applicable
thereto; and
(p) That insofar as it relates to the Acquiring Fund, the Registration
Statement relating to the Acquiring Fund Shares issuable hereunder, and the
proxy materials of the Acquired Fund to be included in the Registration
Statement, and any amendment or supplement to the foregoing, will, from the
effective date of the Registration Statement through the date of the meeting of
shareholders of the Acquired Fund contemplated therein (i) not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading, provided,
however, that the representations and warranties in this subparagraph (p) shall
not apply to statements in or omissions from the Registration Statement made in
reliance upon and in conformity with information that was furnished by the
Acquired Fund for use therein, and (ii) comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date, it
being understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions, and any other
distribution that may be advisable.
5.2. The Acquired Fund will call a meeting of the shareholders of the
Acquired Fund to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3. The Acquired Fund covenants that the Class A, Class B, Class C and
Class Q Acquiring Fund Shares to be issued hereunder are not being acquired for
the purpose of making any distribution thereof, other than in accordance with
the terms of this Agreement.
5.4. The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares.
5.5. Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
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5.6. The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement referred to in paragraph 4.1(p), all to
be included in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the 1934 Act and the
1940 Act, in connection with the meeting of the shareholders of the Acquired
Fund to consider approval of this Agreement and the transactions contemplated
herein.
5.7. As soon as is reasonably practicable after the Closing, the Acquired
Fund will make a liquidating distribution to its shareholders consisting of the
Class A, Class B, Class C and Class Q Acquiring Fund Shares received at the
Closing.
5.8. The Acquiring Fund and the Acquired Fund shall each use its reasonable
best efforts to fulfill or obtain the fulfillment of the conditions precedent to
effect the transactions contemplated by this Agreement as promptly as
practicable.
5.9. Pilgrim Mutual Funds, on behalf of the Acquired Fund, covenants that
Pilgrim Mutual Funds 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 Pilgrim Equity Trust, on behalf of the Acquiring Fund,
may reasonably deem necessary or desirable in order to vest in and confirm (a)
the Pilgrim Mutual Funds', on behalf of the Acquired Fund's, title to and
possession of the Acquiring Fund's Shares to be delivered hereunder, and (b)
Pilgrim Equity Trust's, on behalf of the Acquiring Fund's, title to and
possession of all the assets and otherwise to carry out the intent and purpose
of this Agreement.
5.10. The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state blue sky or securities laws as may be necessary in order to continue
its operations after the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of Pilgrim Mutual Funds, on behalf of the Acquired Fund, to
consummate the transactions provided for herein shall be subject, at Pilgrim
Mutual Funds' election, to the performance by Pilgrim Equity Trust, on behalf of
the Acquiring Fund, of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of Pilgrim Equity Trust, on behalf
of the Acquiring Fund, contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be affected
by the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date;
6.2. Pilgrim Equity Trust shall have delivered to Pilgrim Mutual Funds a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in a form reasonably satisfactory to Pilgrim
Mutual Funds and dated as of the Closing Date, to the effect that the
representations and warranties of Pilgrim Equity Trust, on behalf of the
Acquiring Fund, made in this Agreement are true and correct at and as of the
Closing Date, except as they may be affected by the transactions contemplated by
this Agreement and as to such other matters as Pilgrim Mutual Funds shall
reasonably request;
6.3. Pilgrim Equity Trust, on behalf of the Acquiring Fund, shall have
performed all of the covenants and complied with all of the provisions required
by this Agreement to be performed or complied with by Pilgrim Equity Trust, on
behalf of the Acquiring Fund, on or before the Closing Date; and
6.4. The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each Class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of Pilgrim Equity Trust, on behalf of the Acquiring Fund,
to complete the transactions provided for herein shall be subject, at Pilgrim
Equity Trust's election, to the performance by Pilgrim Mutual Funds, on behalf
B-8
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 Pilgrim Mutual Funds, 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 Pilgrim Mutual Funds 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 Pilgrim Mutual Funds;
7.3. The Pilgrim Mutual Funds 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 Pilgrim Equity Trust and dated as of the Closing Date, to the
effect that the representations and warranties of Pilgrim Mutual Funds, 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 Pilgrim Equity
Trust shall reasonably request;
7.4. Pilgrim Mutual Funds, 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 Pilgrim Mutual Funds, 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 Pilgrim Mutual Funds, on behalf of the
Acquired Fund, or Pilgrim Equity Trust, on behalf of the Acquiring Fund, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement:
8.1. The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of Pilgrim Mutual Funds
Declaration of Trust, By-Laws, applicable Delaware law and the 1940 Act, and
certified copies of the resolutions evidencing such approval shall have been
delivered to the Acquiring Fund. Notwithstanding anything herein to the
contrary, neither the Pilgrim Equity Trust nor the Pilgrim Mutual Funds may
waive the conditions set forth in this paragraph 8.1;
8.2. On the Closing Date no action, suit or other proceeding shall be
pending or, to its knowledge, threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain damages or other relief
in connection with, this Agreement or the transactions contemplated herein;
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Pilgrim Equity Trust or Pilgrim Mutual Funds 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;
B-9
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
Pilgrim Mutual Funds and the Pilgrim Equity Trust substantially to the effect
that, based upon certain facts, assumptions, and representations, the
transaction contemplated by this Agreement shall constitute a tax-free
reorganization for Federal income tax purposes. The delivery of such opinion is
conditioned upon receipt by Dechert of representations it shall request of
Pilgrim Equity Trust and Pilgrim Mutual Funds. Notwithstanding anything herein
to the contrary, neither Pilgrim Equity Trust nor Pilgrim Mutual Funds may waive
the condition set forth in this paragraph 8.5.
9. BROKERAGE FEES AND EXPENSES
9.1. Pilgrim Mutual Funds, on behalf of the Acquired Fund, and Pilgrim
Equity Trust, 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 Acquiring
Fund, and (2) half are borne by the Acquired and Acquiring Funds and will be
paid by the Acquired Fund and Acquiring Fund pro rata based upon the relative
net assets of the Acquired Fund and 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 Pilgrim Equity Trust and the Pilgrim Mutual Funds 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 shall survive the Closing.
11. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned by either party by (i) mutual agreement of the parties, or (ii)
by either party if the Closing shall not have occurred on or before
_______________ __, 200_, unless such date is extended by mutual agreement of
the parties, or (iii) by either party if the other party shall have materially
breached its obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective Trustees or officers,
except for any such material breach or intentional misrepresentation, as to each
of which all remedies at law or in equity of the party adversely affected shall
survive.
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 Pilgrim
Mutual Funds and Pilgrim Equity Trust; provided, however, that following the
meeting of the shareholders of the Acquired Fund called by the Pilgrim Mutual
Funds pursuant to paragraph 5.2 of this Agreement, no such amendment may have
B-10
the effect of changing the provisions for determining the number of the Class A,
Class B, and Class C and Class Q Acquiring Fund Shares to be issued to the
Acquired Fund Shareholders under this Agreement to the detriment of such
shareholders without their further approval.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by
facsimile, personal service or prepaid or certified mail addressed to Pilgrim
Equity Trust or Pilgrim Mutual Funds, 7337 East Doubletree Ranch Road,
Scottsdale, Arizona 85258-2034, 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 Commonwealth of Massachusetts without regard to its principles
of conflicts of laws.
14.4. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5. It is expressly agreed that the obligations of the parties hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents, or employees of Pilgrim Equity Trust or Pilgrim Mutual Funds personally,
but shall bind only the trust property of the Acquiring Fund or the Acquired
Fund, as provided in the Declarations of Trust of Pilgrim Equity Trust and
Pilgrim Mutual Funds. The execution and delivery by such officers shall not be
deemed to have been made by any of them individually or to impose any liability
on any of them personally, but shall bind only the trust property of such party.
B-11
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 EQUITY TRUST on behalf of its
PILGRIM MIDCAP OPPORTUNITIES FUND series
By:
- ---------------------------------- -------------------------------------
SECRETARY
Its:
------------------------------------
Attest: PILGRIM MUTUAL FUNDS on behalf of its
PILGRIM MIDCAP GROWTH FUND series
By:
- ---------------------------------- -------------------------------------
SECRETARY
Its:
------------------------------------
B-12
APPENDIX C
ADDITIONAL INFORMATION REGARDING PILGRIM MIDCAP OPPORTUNITIES FUND
(THE "FUND")
SHAREHOLDER GUIDE
PILGRIM PURCHASE OPTIONS(TM)
This Proxy Statement/Prospectus relates to four separate Classes of the
Fund(*): Class A, Class B, Class C and Class Q, each of which represents an
identical interest in the Fund's investment portfolio, but are offered with
different sales charges and distribution (Rule 12b-1) and service fee
arrangements. As described below and elsewhere in this Proxy Statement/
Prospectus, the contingent deferred sales load structure and conversion
characteristics of the Fund shares that will be issued to you in the
Reorganization will be the same as those that apply to Pilgrim MidCap Growth
Fund shares held by you immediately prior to the Reorganization, and the period
that you held shares of Pilgrim MidCap 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 involved in
the Reorganization are shown in the chart below.
CLASS A CLASS B CLASS C CLASS Q
------- ------- ------- -------
Maximum Initial Sales Charge on Purchases 5.75%(1) None None None
Contingent Deferred Sales Charge ("CDSC") None(2) 5.00%(3) 1.00%(4) None
Annual Distribution (12b-1) and Service Fees (5) 0.30% 1.00% 1.00% 0.25%(6)
Maximum Purchase Unlimited $ 250,000 Unlimited Unlimited
Automatic Conversion to Class A N/A 8 Years(7) N/A N/A
- ----------
(1) Reduced for purchases of $50,000 and over.
(2) For investments of $1 million or more, a CDSC of no more than 1% may be
assessed on redemptions of Class A shares that were purchased without an
initial sales charge. See "Class A Shares: Initial Sales Charge
Alternative" in this Appendix C.
(3) Imposed upon redemption within 6 years from purchase. Fee has scheduled
reductions after the first year. See "Class B Shares: Deferred Sales Charge
Alternative" in this Appendix C.
(4) Imposed upon redemption within 1 year from purchase.
(5) Annual asset-based distribution charge.
(6) Service fee.
(7) Class B shares of the Fund issued to shareholders of Pilgrim MidCap 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 Pilgrim
MidCap 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.
- ----------
* Only the share Classes affected by the Reorganization are discussed in the
Shareholder Guide although other share classes are available.
C-1
CLASS A SHARES: INITIAL SALES CHARGE ALTERNATIVE. Class A shares of the
Fund are sold at the net asset value ("NAV") per share in effect plus a sales
charge as described in the following table. For waivers or reductions of the
Class A shares sales charges, see "Special Purchases Without a Sales Charge" and
"Reduced Sales Charges" below.
AS A % OF THE AS A %
YOUR INVESTMENT OFFERING PRICE OF NAV
--------------- -------------- ------
Less than $50,000 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 Class A shares 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
WHICH CDSC
YOUR INVESTMENT 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
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 that 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 ("SAI") for details on the Letter of Intent option or
contact the Shareholder Servicing Agent at 1-800-992-0180 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 money market funds offered by ING Pilgrim Investments, LLC)
("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 SAI for details or contact the Shareholder Servicing Agent at 1-800-992-0180
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 1-800-992-0180, or see
the SAI for the Fund.
CLASS B SHARES: DEFERRED SALES CHARGE ALTERNATIVE. Class B shares are
offered at their NAV per share without any initial sales charge. Class B shares
that are redeemed within six years of purchase, however, will be subject to a
CDSC as described in the table that follows. Class B shares of the Fund are
subject to distribution and service fees at an annual rate of 1.00% of the
average daily net assets of the Class, which is higher than the distribution and
C-2
service fees of Class A shares. The higher distribution and service fees mean a
higher expense ratio, so Class B shares pay correspondingly lower dividends and
may have a lower NAV than Class A shares. Orders for Class B shares in excess of
$250,000 will be accepted as orders for Class A shares or declined. The amount
of the CDSC is based on the lesser of the NAV of the Class B shares at the time
of purchase or redemption. There is no CDSC on Class B shares acquired through
the reinvestment of dividends and capital gains distributions. The CDSCs are as
follows:
YEAR OF REDEMPTION AFTER PURCHASE CDSC
--------------------------------- ----
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
After Sixth Year None
Class B shares will automatically convert into Class A shares approximately
eight years after purchase. Class B shares of the Fund issued in connection with
the Reorganization with respect to Class B shares of Pilgrim MidCap Growth Fund
will convert to Class A shares eight years after the purchase of the original
shares of Pilgrim MidCap Growth Fund. For additional information on the CDSC and
the conversion of Class B, see the SAI.
CLASS C SHARES. Class C shares are offered at their NAV per share without
an initial sales charge. Class C shares may be subject to a CDSC of 1% if
redeemed within one year of purchase. The amount of the CDSC is based on the
lesser of the NAV of the Class C shares at the time of purchase or redemption.
There is no CDSC on Class C shares acquired through the reinvestment of
dividends and capital gains distributions.
CLASS Q SHARES. Class Q shares are offered at NAV without a sales charge to
qualified retirement plans, financial and other institutions and "wrap
accounts." The minimum initial investment is $250,000, and the minimum
subsequent investment is $10,000. The Distributor may waive these minimums from
time to time.
WAIVERS OF CDSC. The CDSC will be waived in the following cases. In
determining whether a CDSC is applicable, it will be assumed that shares held in
the shareholder's account that are not subject to such charge are redeemed
first.
(i) 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.
(ii) The CDSC also may be waived for Class B shares redeemed pursuant to a
Systematic Withdrawal Plan, as described in the Pilgrim Prospectus, up
to a maximum of 12% per year of a shareholder's account value based on
the value of 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.
(iii) The CDSC also will be waived in the case of mandatory distributions
from a tax-deferred retirement plan or an IRA. However, if you
purchased shares that were part of the Nicholas-Applegate Mutual
Funds, you may be eligible for a CDSC waiver prior to the mandatory
distribution age.
If you think you may be eligible for a CDSC waiver, contact the Shareholder
Servicing Agent at 1-800-992-0180.
REINSTATEMENT PRIVILEGE. Class B and Class C shareholders who have redeemed
their shares in any open-end Pilgrim Fund may reinvest some or all of the
proceeds in the same share Class within 90 days without a sales charge.
Reinstated Class B and Class C shares will retain their original cost and
C-3
purchase date for purposes of the CDSC. This privilege can be used only once per
calendar year. See the SAI for details or contact the Shareholder Servicing
Agent at 1-800-992-0180 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, as amended (the "1940 Act") applicable
to each Class of shares of the Fund ("Rule 12b-1 Plan"). Under the Rule 12b-1
Plan, ING Pilgrim Securities, Inc. (the "Distributor") may receive from the Fund
an annual fee in connection with the offering, sale and shareholder servicing of
the Fund's Class A, Class B, Class C and Class Q shares.
DISTRIBUTION AND SERVICING FEES. As compensation for services rendered and
expenses borne by the Distributor in connection with the distribution of shares
of the Fund and in connection with services rendered to shareholders of the
Fund, the Fund pays the Distributor servicing fees and distribution fees up to
the annual rates set forth below (calculated as a percentage of the Fund's
average daily net assets attributable to that class):
SERVICING FEE DISTRIBUTION FEE
------------- ----------------
Class A 0.25% 0.05%
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class Q 0.25% None
Fees paid under the Rule 12b-1 Plan may be used to cover the expenses of
the Distributor from the sale of Class A, Class B, Class C or Class Q shares of
the Fund, including payments to Authorized Dealers, and for shareholder
servicing. Because these fees are paid out of the Fund's assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
OTHER EXPENSES. In addition to the management fee and other fees described
previously, the Fund pays other expenses, such as legal, audit, transfer agency
and custodian fees, proxy solicitation costs and the compensation of Trustees
who are not affiliated with ING Pilgrim Investments, LLC ("ING Pilgrim"). 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 for Class A, B, or C or $250,000 in the case of
Class Q shares ($250.00 for IRAs). The minimum initial investment in the Fund is
$1,000 for Class A, B, or C or $250,000 for Class Q shares ($250 for IRAs), and
the minimum for additional investment in the Fund is $100 or $10,000 in the case
of Class Q shares. 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 reserves the right to waive minimum
investment amounts.
PRICE OF SHARES. When you buy shares, you pay the NAV plus any applicable
sales charge. When you sell shares, you receive the NAV minus any applicable
deferred sales charge. Exchange orders are effected at NAV.
DETERMINATION OF NET ASSET VALUE. The NAV of each Class of the Fund's
shares is determined daily as of the close of regular trading on the New York
Stock Exchange (usually at 4:00 p.m. Eastern Time) on each day that it is open
for business. The NAV of each Class represents that Class' pro rata share of
that Fund's net assets as adjusted for any class specific expenses (such as fees
under a Rule 12b-1 plan), and divided by that Class' outstanding shares. In
general, the value of the Fund's assets is based on actual or estimated market
C-4
value, with special provisions for assets not having readily available market
quotations, for short-term debt securities, and for situations where market
quotations are deemed unreliable. The NAV per share of each Class of the Fund
will fluctuate in response to changes in market conditions and other factors.
Portfolio securities for which market quotations are readily available are
stated at market value. Short-term debt securities having a maturity of 60 days
or less are valued at amortized cost, unless the amortized cost does not
approximate market value. Securities prices may be obtained from automated
pricing services. When market quotations are not readily available or are deemed
unreliable, securities are valued at their fair value as determined in good
faith under the supervision of the Board of Trustees. Valuing securities at fair
value involves greater reliance on judgment than valuing securities that have
readily available market quotations. For information on valuing foreign
securities, see the SAI.
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 1-800-992-0180.
RETIREMENT PLANS. The Fund has available prototype qualified retirement
plans for both corporations and for self-employed individuals. Also available
are prototype IRA, Roth IRA and Simple IRA plans (for both individuals and
employers), Simplified Employee Pension Plans, Pension and Profit Sharing Plans
and Tax Sheltered Retirement Plans for employees of public educational
institutions and certain non-profit, tax-exempt organizations. State Street Bank
and Trust Company ("SSB") acts as the custodian under these plans. For further
information, contact the Shareholder Servicing Agent at 1-800-992-0180. SSB
currently receives a $12 custodian fee annually for the maintenance of such
accounts.
EXECUTION OF REQUESTS. Purchase and sale requests are executed at the NAV
next determined after the order is received in proper form by the Transfer Agent
or Distributor. A purchase order will be deemed to be in proper form when all of
the required steps set forth under the section "How to Purchase Shares" in the
Pilgrim Prospectus have been completed. If you purchase by wire, however, the
order will be deemed to be in proper form after the telephone notification and
the federal funds wire have been received. If you purchase by wire, you must
submit an application form in a timely fashion. If an order or payment by wire
is received after the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern Time), the shares will not be credited until the
next business day.
You will receive a confirmation of each new transaction in your account,
which also will show you the number of shares of the Fund you own including the
number of shares being held in safekeeping by the Transfer Agent for your
account. You may rely on these confirmations in lieu of certificates as evidence
of your ownership. Certificates representing shares of the Fund will not be
issued unless you request them in writing.
TELEPHONE ORDERS. The Fund and its Transfer Agent will not be responsible
for the authenticity of phone instructions or losses, if any, resulting from
unauthorized shareholder transactions if they reasonably believe that such
instructions were genuine. The Fund and its Transfer Agent have established
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures include recording telephone instructions for exchanges
and expedited redemptions, requiring the caller to give certain specific
identifying information, and providing written confirmation to shareholders of
record not later than five days following any such telephone transactions. If
the Fund and its Transfer Agent do not employ these procedures, they may be
liable for any losses due to unauthorized or fraudulent telephone instructions.
Telephone redemptions may be executed on all accounts other than retirement
accounts.
EXCHANGE PRIVILEGES AND RESTRICTIONS
An exchange privilege is available. Exchange requests may be made in
writing to the Transfer Agent or by calling the Shareholder Servicing Agent at
1-800-992-0180. 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 reserves the right to prohibit excessive exchanges (more than four per
year). ING Pilgrim 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.
C-5
Shares of any Class of the Fund generally may be exchanged for shares of
that same Class of any other open-end Pilgrim Fund without payment of any
additional sales charge in most instances. 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 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 should carefully review the prospectus of the Pilgrim
Fund you intend to exchange into before exchanging your shares.
Exchanges of shares are sales and may result in a gain or loss for federal
and state income tax purposes.
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 or $250,000 in the case of Class Q shares, other than
as a result of a decline in the NAV per share.
With respect to Class Q shares, if you draw on a non-retirement account so
that its total value is less than the Fund minimum, you may be asked to purchase
more shares within 60 days. If you do not take action, the Fund may close out
your account and mail you the proceeds. Your account will not be closed if its
drop in value is due to Fund performance.
HOW TO REDEEM SHARES
Shares of the Fund will be redeemed at the NAV (less any applicable CDSC
and/or federal income tax withholding) next determined after receipt of a
redemption request in good form on any day the New York Stock Exchange is open
for business.
SYSTEMATIC WITHDRAWAL PLAN. You may elect to have monthly, quarterly,
semi-annual or annual payments in any fixed amount of $100 or more made to
yourself, or to anyone else you properly designate, as long as the account has a
current value of at least $10,000. With respect to Class Q shares, you may elect
to have monthly, quarterly, semi-annual , or annual payments in any fixed amount
of $1,000 or more made to yourself or anyone else you properly designate, as
long as the account has a current value of at least $250,000. For additional
information, contact the Shareholder Servicing Agent at (800) 992-0180, or see
the SAI.
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 U.S. 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.
C-6
MANAGEMENT OF THE FUND
INVESTMENT MANAGER. ING Pilgrim has overall responsibility for the
management of the Fund. The Fund and ING Pilgrim have entered into an agreement
that requires ING Pilgrim to provide or oversee all investment advisory and
portfolio management services for the Fund. ING Pilgrim provides the Fund with
office space, equipment and personnel necessary to administer the Fund. The
agreement with ING Pilgrim can be canceled by the Board of Trustees of the Fund
upon 60 days' written notice. Organized in December 1994, ING Pilgrim is
registered as an investment adviser with the Securities and Exchange Commission.
As of October 31, 2001, ING Pilgrim managed over $16.6 billion in assets. ING
Pilgrim bears its expenses of providing the services described above. Investment
management fees are computed and accrued daily and paid monthly.
INVESTMENT PERSONNEL. Mary Lisanti, Executive Vice President and Chief
Investment Officer -- Domestic Equities of ING Pilgrim, has served as a Senior
Portfolio Manager of the Fund since the Fund was formed in August 1998. Prior to
joining ING Pilgrim in October 1999, Ms. Lisanti was Executive Vice President
and Chief Investment Officer -- Domestic Equities with Northstar Investment
Management Corp., which subsequently merged into ING Pilgrim. From 1996 to 1998,
Ms. Lisanti was a Portfolio Manager at Strong Capital Management. From 1993 to
1996, Ms. Lisanti was a Managing Director and Head of Small- and
Mid-Capitalization Equity Strategies at Bankers Trust Corp.
Jeffrey Bernstein, Senior Vice President of ING Pilgrim, has served as a
Senior Portfolio Manager of the Fund since the Fund was formed in August 1998.
Prior to joining ING Pilgrim in October 1999, Mr. Bernstein was a portfolio
manager at Northstar Investment Management Corp., which subsequently merged into
ING Pilgrim. Prior to May 1998, Mr. Bernstein was a portfolio manager at Strong
Capital Management. From 1995 to 1997, Mr. Bernstein was a portfolio manager at
Berkeley Capital.
PARENT COMPANY AND DISTRIBUTOR. ING Pilgrim 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 over 100,000
employees.
SHAREHOLDER SERVICING AGENT. ING Pilgrim Group, LLC 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 will place orders to execute securities
transactions that are designed to implement the Fund's investment objectives and
policies. ING Pilgrim 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 may consider brokerage and research services provided by a broker to ING
Pilgrim 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 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 may place securities
transactions with brokers that provide certain services to the Fund. ING Pilgrim
also may consider a broker's sale of Fund shares if ING Pilgrim is satisfied
that the Fund would receive best execution of the transaction from that broker.
DIVIDENDS, DISTRIBUTIONS AND 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
C-7
the Pilgrim Prospectus, elect to have all dividends and other distributions paid
on a Class A, Class B, Class C or Class Q account in the Fund invested into a
Pilgrim Fund or ING Fund which offers Class A, Class B, Class C or Class Q
shares.
FEDERAL TAXES. The following information is meant as a general summary for
U.S. shareholders. Please see the SAI 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 30.5% (30% in 2002 and 2003) 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
FINANCIAL HIGHLIGHTS
PILGRIM MIDCAP
OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
For the five months ended May 31, 2001 and the year ended December 31, 2000, the
information in the tables below has been audited by KPMG LLP, independent
auditors. For all periods ended prior to December 31, 2000, the financial
information was audited by other independent auditors.
CLASS A CLASS B
------------------------------------------ ------------------------------------------
FIVE FIVE
MONTHS YEAR ENDED MONTHS YEAR ENDED
ENDED DECEMBER 31, ENDED DECEMBER 31,
MAY 31, ----------------------------- MAY 31, -----------------------------
2001(1) 2000 1999 1998(2) 2001(1) 2000 1999 1998(2)
------- ---- ---- ------- ------- ---- ---- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $ 19.12 21.29 12.96 10.00 18.79 21.12 12.97 10.00
Income from investment
operations:
Net investment loss $ (0.11) (0.15) (0.09) (0.03) (0.14) (0.24) (0.07) (0.03)
Net realized and unrealized
gain (loss) on investments $ (4.43) 0.16 12.01 2.99 (4.35) 0.09 11.81 3.00
Total from investment
operations $ (4.54) 0.01 11.92 2.96 (4.49) (0.15) 11.74 2.97
Less distributions from:
Net realized loss on
investments $ -- (2.18) (3.59) -- -- (2.18) (3.59) --
Total distributions $ -- (2.18) (3.59) -- -- (2.18) (3.59) --
Net asset value, end of period $ 14.58 19.12 21.29 12.96 14.30 18.79 21.12 12.97
TOTAL RETURN(3): % (23.74) (0.35) 103.24 29.60 (23.90) (1.13) 101.73 29.70
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $ 24,265 25,742 6,291 610 28,448 35,551 8,252 140
Ratios to average net assets:
Net expenses after expense
reimbursement(4) % 2.06 1.66 1.74 1.80(5) 2.76 2.36 2.40 2.50(5)
Gross expenses prior to
expense reimbursement(4) % 2.06 1.66 1.74 2.42 2.76 2.36 2.40 3.27
Net investment loss after
expense reimbursement(4) % (1.52) (0.96) (1.34) (1.10)(5 (2.22) (1.66) (2.00) (2.05)(5)
Portfolio turnover rate % 182 188 201 61 182 188 201 61
- ----------
(1) The Fund changed its fiscal year end to May 31.
(2) Class A and Class B commenced operations on August 20, 1998.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding deduction of
sales charges. Total return for less than one year is not annualized.
(4) Annualized for periods less than one year.
(5) Expenses calculated net of taxes and adviser reimbursement.
C-9
CLASS C CLASS Q
------------------------------------------------ ------------------------
FIVE FIVE
MONTHS YEAR ENDED MONTHS
ENDED DECEMBER 31, ENDED PERIOD ENDED
MAY 31, -------------------------------- MAY 31, DECEMBER 31,
2001(1) 2000 1999 1998(2) 2001(1) 2000
------- ---- ---- ------- ------- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 18.72 21.03 12.96 10.00 19.16 22.57
Income from investment operations:
Net investment loss $ (0.14) (0.24) (0.07) (0.04) (0.08) (0.06)
Net realized and unrealized gain (loss)
on investments $ (4.34) 0.11 11.73 3.00 (4.45) (1.17)
Total from investment operations $ (4.48) (0.13) 11.66 2.96 (4.53) (1.23)
Less distributions from:
Net realized gain (loss) on investments $ -- (2.18) (3.59) -- -- 2.18
Total distributions $ -- (2.18) (3.59) -- -- 2.18
Net asset value, end of period $ 14.24 18.72 21.03 12.96 14.63 19.16
TOTAL RETURN(3): % (23.93) (1.03) 101.16 29.60 (23.64) (5.86)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $ 18,901 25,939 4,560 87 3,071 3,264
Ratios to average net assets:
Net expenses after expense
reimbursement(4) % 2.76 2.36 2.36 2.50(5) 1.82 1.61
Gross expenses prior to expense
reimbursement(4) % 2.76 2.36 2.36 3.22
Net investment loss after expenses
reimbursement(4) % (2.22) (1.66) (1.98) (2.04)(5) (1.28) (0.91)
Portfolio turnover rate % 182 188 201 61 182 188
- ----------
(1) The Fund changed its fiscal year end to May 31.
(2) Class C commenced operations on August 20, 1998. Class Q commenced
operations April 4, 2000.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding deduction of
sales charges. Total return for less than one year is not annualized.
(4) Annualized for periods less than one year.
(5) Expenses calculated net of taxes and adviser reimbursement.
C-10
APPENDIX D
The following is a list of the 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
- ---- ---------------
U.S. EQUITY
Balanced Fund A, B, C, Q and T
Biotechnology Fund A, B and C
Convertible Fund A, B, C and Q
Corporate Leaders Trust Fund A
Financial Services Fund A, C and Q
Growth and Income Fund A, B, C, I 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, I and Q
MagnaCap Fund A, B, C, I, Q and M
MidCap Opportunities Fund A, B, C, Q and I
Principal Protection Fund A, B and C
Principal Protection Fund II A, B and C
Research Enhanced Index Fund A, B, C, Q and I
SmallCap Opportunities Fund A, B, C, Q, I and T
Tax-Efficient Equity Fund A, B, and C
GLOBAL/INTERNATIONAL EQUITY
Asia-Pacific Equity Fund A, B, C, Q and M
Emerging Countries Fund A, B, C and Q
European Equity Fund A, B, and C
Global Information Technology Fund A, B, C, I and Q
Global Real Estate Fund A, B, C and Q
International Fund A, B, C, I and Q
International SmallCap Growth Fund A, B, C and Q
International Value Fund A, B, C, I and Q
Precious Metals Fund A, B, C and Q
Russia Fund A, C and Q
Worldwide Growth Fund A, B, C and Q
FIXED INCOME
GNMA Income Fund A, B, C, I, M, Q and T
High Yield Fund II A, B, C, M, Q and T
High Yield Bond Fund A, B, and C
ING Pilgrim Money Market Fund A, B, C and I
Intermediate Bond Fund A, B, C and I
Lexington Money Market Trust A
National Tax-Exempt Bond Fund A, B and C
Pilgrim Money Market Fund A, B and C
Senior Income Fund A, B, C and Q
Strategic Income Fund A, B, C and Q
D-1
APPENDIX E
As of January _, 2002, the following persons owned beneficially or of
record 5% or more of the outstanding shares of the specified Class of Pilgrim
MidCap Opportunities Fund:
% OF CLASS % OF FUND % OF FUND
CLASS AND TYPE BEFORE BEFORE AFTER
NAME AND ADDRESS OF OWNERSHIP REORGANIZATION REORGANIZATION REORGANIZATION
---------------- ------------ -------------- -------------- --------------
[TO BE INSERTED IN A SUBSEQUENT FILING WITH INFORMATION NO MORE THAN 30 DAYS
PRIOR TO THE DATE OF THE PROXY.]
As of January _, 2002, the following persons owned beneficially or of
record 5% or more of the outstanding shares of the specified Class of Pilgrim
MidCap Growth Fund:
% OF CLASS % OF FUND % OF FUND
CLASS AND TYPE BEFORE BEFORE AFTER
NAME AND ADDRESS OF OWNERSHIP REORGANIZATION REORGANIZATION REORGANIZATION
---------------- ------------ -------------- -------------- --------------
[TO BE INSERTED IN A SUBSEQUENT FILING WITH INFORMATION NO MORE THAN 30 DAYS
PRIOR TO THE DATE OF THE PROXY.]
E-1
PART B
PILGRIM EQUITY TRUST
- --------------------------------------------------------------------------------
Statement of Additional Information
________ ___, 2001
- --------------------------------------------------------------------------------
Acquisition of the Assets and Liabilities of By and in Exchange for Shares of
Pilgrim MidCap Growth Fund Pilgrim MidCap Opportunities Fund
(a series of Pilgrim Mutual Funds) (a series of Pilgrim Equity Trust)
7337 East Doubletree Ranch Road 7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034 Scottsdale, Arizona 85258-2034
This Statement of Additional Information is available to the Shareholders of
Pilgrim MidCap Growth Fund in connection with a proposed transaction whereby all
of the assets and liabilities of Pilgrim MidCap Growth Fund, a series of Pilgrim
Mutual Funds, will be transferred to Pilgrim MidCap Opportunities Fund, a series
of Pilgrim Equity Trust, in exchange for shares of Pilgrim MidCap Opportunities
Fund.
This Statement of Additional Information of Pilgrim Equity Trust consists of
this cover page and the following documents, each of which was filed
electronically with the U.S. Securities and Exchange Commission and is
incorporated by reference herein:
1. The Statement of Additional Information for Pilgrim MidCap Opportunities
Fund and Pilgrim MidCap Growth Fund dated November 9, 2001, as filed on
November 9, 2001.
2. The Financial Statements of Pilgrim MidCap Growth Fund are included in the
Annual Report of Pilgrim Mutual Funds dated May 31, 2001 as filed on July
31, 2001 (for the Fund's Class A, B, and C shares) and August 2, 2001 (for
the Fund's Class Q shares).
3. The Financial Statements of Pilgrim MidCap Opportunities Fund are included
in the Annual Report of Pilgrim Equity Trust dated May 31, 2001, as filed
on July 31, 2001 (for the Fund's Class A, B, C and I shares) and August 2,
2001 (for the Fund's Class Q shares).
This Statement of Additional Information is not a prospectus. A Prospectus/Proxy
Statement dated ________ ___, 2002 relating to the Reorganization of Pilgrim
MidCap Growth Fund may be obtained, without charge, by writing to ING Pilgrim at
7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258-2034 or calling
1-800-992-0180. This Statement of Additional Information should be read in
conjunction with the Prospectus/Proxy Statement.
B-1
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Shown below are unaudited financial statements for each Fund and pro forma
unaudited financial statements for the combined Fund, assuming the
Reorganization is consummated, as of May 31, 2001. The first table presents
Statements of Assets and Liabilities (unaudited) for each Fund and unaudited pro
forma figures for the combined Fund. The second table presents Statements of
Operations (unaudited) for each Fund and pro forma unaudited figures for the
combined Fund. The third table presents Portfolio of Investments for each Fund
and pro forma unaudited figures for the combined Fund. The tables are followed
by the Notes to the unaudited Pro Forma Financial Statements (unaudited).
B-2
STATEMENT OF ASSETS AND LIABILITIES AS OF MAY 31, 2001 (UNAUDITED)
PILGRIM PILGRIM
MIDCAP MIDCAP
OPPORTUNITIES GROWTH PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
------------- ------------- ------------- -------------
ASSETS:
Investments in securities, at value* $ 124,076,329 $ 347,565,679 $ 471,642,008
Short-term securities, at value 985,000 4,270,000 5,255,000
Cash 296 10,677 10,973
Receivables:
Investment securities sold 6,045,144 18,298,645 24,343,789
Fund shares sold 72,083 352,332 424,415
Dividends and interest 15,005 37,615 52,620
Other -- 7,958 7,958
Prepaid expenses 100,694 60,581 161,275
------------- ------------- ------------- -------------
Total assets 131,294,551 370,603,487 -- 501,898,038
------------- ------------- ------------- -------------
LIABILITIES:
Payable for investment securities purchased 4,046,061 11,392,808 15,438,869
Payable for fund shares redeemed 272,035 1,743,417 2,015,452
Payable to affiliates 182,202 519,286 701,488
Other accrued expenses and liabilities 102,951 366,852 469,803
------------- ------------- ------------- -------------
Total liabilities 4,603,249 14,022,363 -- 18,625,612
------------- ------------- ------------- -------------
NET ASSETS $ 126,691,302 $ 356,581,124 $ -- $ 483,272,426
============= ============= ============= =============
NET ASSETS WERE COMPRISED OF:
Paid-in capital $ 150,268,036 $ 382,566,690 $ 532,834,726
Undistributed net investment income -- -- --
Accumulated net realized loss on investments (31,047,554) (47,189,003) (78,236,557)
Net unrealized appreciation of investments 7,470,820 21,203,437 28,674,257
------------- ------------- ------------- -------------
NET ASSETS $ 126,691,302 $ 356,581,124 $ -- $ 483,272,426
============= ============= ============= =============
*Cost of securities 116,605,509 326,362,242 $ 442,967,751
CLASS A:
Net Assets $ 24,264,616 $ 98,529,696 $ 122,794,312
Shares outstanding 1,664,228 6,417,555 340,312 (A) 8,422,095
Net asset value and redemption price per share $ 14.58 $ 15.35 $ 14.58
Maximum offering price per share (5.75%) $ 15.47 $ 16.29 $ 15.47
CLASS B:
Net Assets $ 28,447,745 $ 85,111,123 $ 113,558,868
Shares outstanding 1,989,367 4,754,523 1,197,304 (A) 7,941,194
Net asset value and redemption price per share $ 14.30 $ 17.90 $ 14.30
Maximum offering price per share $ 14.30 $ 17.90 $ 14.30
CLASS C:
Net Assets $ 18,900,592 $ 156,528,141 $ 175,428,733
Shares outstanding 1,327,151 11,138,747 (146,602)(A) 12,319,296
Net asset value and redemption price per share $ 14.24 $ 14.05 $ 14.24
Maximum offering price per share $ 14.24 $ 14.05 $ 14.24
CLASS I:
Net Assets $ 52,007,043 n/a $ 52,007,043
Shares outstanding 3,531,454 n/a 3,531,454
Net asset value and redemption price per share $ 14.73 n/a $ 14.73
Maximum offering price per share $ 14.73 n/a $ 14.73
CLASS Q:
Net Assets $ 3,071,306 $ 16,412,164 $ 19,483,470
Shares outstanding 209,901 842,194 279,622(A) 1,331,717
Net asset value and redemption price per share $ 14.63 $ 19.49 $ 14.63
Maximum offering price per share $ 14.63 $ 19.49 $ 14.63
(A) Reflects new shares issued, net of retired shares of MidCap Growth Fund.
(Calculation: Net Assets / NAV per share)
See Accompanying Notes to Unaudited Financial Statements
B-3
STATEMENTS OF OPERATIONS (UNAUDITED)
MIDCAP MIDCAP
OPPORTUNITIES GROWTH PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
------------- ------------- ------------- -------------
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
31-MAY 31-MAY 31-MAY 31-MAY
2001 2001 2001 2001
------------- ------------- ------------- -------------
INVESTMENT INCOME:
Dividends $ 501,347 $ 1,292,993 $ 1,794,340
Interest 523,089 1,491,249 2,014,338
------------- ------------- ------------- -------------
Total Investment Income 1,024,436 2,784,242 3,808,678
------------- ------------- ------------- -------------
EXPENSES:
Investment management fees 1,495,819 3,578,116 1,199,134(A) 6,273,069
Distribution and service fees
Class A 77,815 469,257 (67,037)(A) 480,035
Class B 316,711 1,083,171 1,399,882
Class C 227,462 2,162,497 2,389,959
Class Q 6,484 47,712 54,196
Administrative fees 149,610 -- 477,697(A) 627,307
Transfer agent fees 143,224 771,443 914,667
Shareholder reporting fees 63,630 324,240 387,870
Registration and filing fees 47,752 107,941 (43,176)(B) 112,517
Recordkeeping and pricing fees 5,000 117,409 122,409
Professional fees 73,133 66,698 (26,679)(B) 113,152
Custody fees 57,929 81,782 139,711
Shareholder servicing fees 49,621 32,574 82,195
Director's fees 4,864 20,175 25,039
Insurance fees 66 5,461 5,527
Miscellaneous fees 37,404 49,905 87,309
Interest and credit facility fees -- 3,008 3,008
Merger fees 50,373 -- 50,373
------------- ------------- ------------- -------------
Total Expenses 2,806,897 8,921,389 1,539,938 13,268,224
------------- ------------- ------------- -------------
Less:
Waived and reimbursed fees/(recoupment) -- (68,510) 68,510(A) --
Earnings credit -- 5,832 (5,832) --
------------- ------------- ------------- -------------
Net Expenses 2,806,897 8,984,067 1,477,260 13,268,224
------------- ------------- ------------- -------------
Net Investment loss (1,782,461) (6,199,825) (1,477,260) (9,459,546)
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized loss on investments (22,061,110) (13,880,372) (35,941,482)
Net change in unrealized depreciation
of investments (14,675,006) (112,367,646) (127,042,652)
------------- ------------- ------------- -------------
Net realized and unrealized loss
on investments (36,736,116) (126,248,018) (162,984,134)
------------- ------------- ------------- -------------
Decrease in net assets resulting
from operations $ (38,518,577) $(132,447,843) $ (1,477,260) $(172,443,680)
============= ============= ============= =============
- ----------
(A) Reflects adjustment in expenses due to effects of new contractual rates.
(B) Reflects adjustment in expenses due to elimination of duplicative services.
See Accompanying Notes to Unaudited Financial Statements
B-4
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
As of May 31, 2001
- --------------------------------------------------------------------------------
PILGRIM
MIDCAP PILGRIM PILGRIM PILGRIM
OPPORTUNITIES MIDCAP PRO FORMA MIDCAP MIDCAP PRO FORMA
SHARES GROWTH SHARES OPPORTUNITIES GROWTH VALUE
------ ------ ------ ------------- ------ -----
COMMON STOCK: 97.59%
BANKS: 4.46%
12,900 -- 12,900 City National Corp. 549,927 -- 549,927
23,100 70,500 93,600 Commerce Bancorp, Inc. 1,584,660 4,836,300 6,420,960
48,200 134,700 182,900 First Tennessee National Corp. 1,715,920 4,795,320 6,511,240
19,500 -- 19,500 North Fork Bancorporation 556,530 -- 556,530
43,100 136,200 179,300 TCF Financial Corp. 1,805,459 5,705,418 7,510,877
----------- ----------- -----------
6,212,496 15,337,038 21,549,534
----------- ----------- -----------
BIOTECHNOLOGY: 6.04%
23,600 66,500 90,100 @ Genzyme Corp. 2,523,784 7,111,510 9,635,294
22,200 54,600 76,800 @ Human Genome Sciences, Inc. 1,472,970 3,622,710 5,095,680
22,200 62,900 85,100 @ IDEC Pharmaceuticals Corp. 1,367,520 3,874,640 5,242,160
27,500 34,000 61,500 @ Invitrogen Corp. 1,969,275 2,434,740 4,404,015
36,600 90,000 126,600 @ Millennium Pharmaceuticals 1,397,022 3,435,300 4,832,322
----------- ----------- -----------
8,730,571 20,478,900 29,209,471
----------- ----------- -----------
CHEMICALS: 0.08%
8,300 8,300 Air Products & Chemicals, Inc. 388,191 -- 388,191
----------- ----------- -----------
COMMERCIAL SERVICES: 3.70%
61,400 171,400 232,800 @ Caremark Rx, Inc. 999,592 2,790,392 3,789,984
80,300 210,800 291,100 @ Cendant Corp. 1,540,154 4,043,144 5,583,298
41,100 116,600 157,700 @ Concord EFS, Inc. 2,083,770 5,911,620 7,995,390
17,500 -- 17,500 @ Robert Half Intl., Inc. 493,500 -- 493,500
----------- ----------- -----------
5,117,016 12,745,156 17,862,172
----------- ----------- -----------
COMPUTERS: 5.39%
39,500 110,300 149,800 @ Brocade Communications System 1,540,500 4,301,700 5,842,200
29,100 81,800 110,900 @ Lexmark Intl., Inc. 1,803,909 5,070,782 6,874,691
62,500 175,800 238,300 @ McData Corp. 1,925,000 5,414,640 7,339,640
26,500 74,100 100,600 @ Sungard Data Systems, Inc. 1,576,220 4,407,468 5,983,688
----------- ----------- -----------
6,845,629 19,194,590 26,040,219
----------- ----------- -----------
DIVERSIFIED FINANCIAL SERVICES: 1.94%
31,600 95,100 126,700 Heller Financial, Inc. 1,087,040 3,271,440 4,358,480
69,200 193,200 262,400 @ Instinet Group, Inc. 1,319,644 3,684,324 5,003,968
----------- ----------- -----------
2,406,684 6,955,764 9,362,448
----------- ----------- -----------
ELECTRIC: 2.95%
26,600 68,200 94,800 @ Calpine Corp. 1,311,380 3,362,260 4,673,640
20,900 54,700 75,600 @ NRG Energy, Inc. 612,997 1,604,351 2,217,348
44,500 125,500 170,000 @ Orion Power Holdings, Inc. 1,217,075 3,432,425 4,649,500
20,900 58,400 79,300 @ Reliant Resources, Inc. 718,960 2,008,960 2,727,920
----------- ----------- -----------
3,860,412 10,407,996 14,268,408
----------- ----------- -----------
ELECTRICAL COMPONENTS & EQUIPMENT: 2.05%
37,300 -- 37,300 @ American Power Conversion 605,752 -- 605,752
70,700 211,900 282,600 @ Capstone Turbine Corp. 2,323,909 6,965,153 9,289,062
----------- ----------- -----------
2,929,661 6,965,153 9,894,814
----------- ----------- -----------
ELECTRONICS: 0.81%
-- 105,800 105,800 @ American Power Conversion Corp. -- 1,718,192 1,718,192
19,500 55,200 74,700 @ Jabil Circuit, Inc. 572,910 1,621,776 2,194,686
----------- ----------- -----------
572,910 3,339,968 3,912,878
----------- ----------- -----------
ENGINEERING & CONSTRUCTION: 1.81%
39,500 110,400 149,900 Fluor Corp. 2,303,640 6,438,528 8,742,168
----------- ----------- -----------
FOREST PRODUCTS & PAPER: 0.95%
21,300 59,300 80,600 Weyerhaeuser Co. 1,218,573 3,392,553 4,611,126
----------- ----------- -----------
HEALTHCARE-PRODUCTS: 2.13%
31,400 31,400 Biomet, Inc. 1,402,638 -- 1,402,638
82,700 292,500 375,200 @ Boston Scientific Corp. 1,432,364 5,066,100 6,498,464
13,400 37,900 51,300 @ Minimed, Inc. 626,718 1,772,583 2,399,301
----------- ----------- -----------
3,461,720 6,838,683 10,300,403
----------- ----------- -----------
HEALTHCARE-SERVICES: 1.08%
9,700 27,400 37,100 @ Laboratory Corp. of America Holdings 1,360,522 3,843,124 5,203,646
----------- ----------- -----------
INSURANCE: 2.68%
25,550 25,550 AMBAC Financial Group, Inc. 1,432,078 -- 1,432,078
128,600 359,900 488,500 Conseco, Inc. 2,240,212 6,269,458 8,509,670
8,400 27,300 35,700 Radian Group, Inc. 713,160 2,317,770 3,030,930
----------- ----------- -----------
4,385,450 8,587,228 12,972,678
----------- ----------- -----------
INTERNET: 1.23%
29,500 72,700 102,200 @ TMP Worldwide, Inc. 1,718,965 4,236,229 5,955,194
----------- ----------- -----------
MEDIA: 3.04%
74,100 207,000 281,100 @ Hispanic Broadcasting Corp. 1,833,975 5,123,250 6,957,225
37,400 104,500 141,900 @ Univision Communications, Inc. 1,635,502 4,569,785 6,205,287
13,000 36,700 49,700 @ Westwood One, Inc. 402,870 1,137,333 1,540,203
----------- ----------- -----------
3,872,347 10,830,368 14,702,715
----------- ----------- -----------
MEDICAL: 0.71%
-- 76,700 76,700 @ Biomet, Inc. -- 3,426,189 3,426,189
----------- ----------- -----------
METAL FABRICATE/HARDWARE: 1.96%
42,400 119,100 161,500 @ The Shaw Group, Inc. 2,492,272 7,000,698 9,492,970
----------- ----------- -----------
See Accompanying Notes to Unaudited Financial Statements
B-5
PILGRIM
MIDCAP PILGRIM PILGRIM PILGRIM
OPPORTUNITIES MIDCAP PRO FORMA MIDCAP MIDCAP PRO FORMA
SHARES GROWTH SHARES OPPORTUNITIES GROWTH VALUE
------ ------ ------ ------------- ------ -----
OFFICE/BUSINESS EQUIPMENT: 0.55%
71,000 198,200 269,200 Xerox Corp. 703,610 1,964,162 2,667,772
----------- ----------- -----------
OIL & GAS: 9.95%
15,200 42,500 57,700 @ Cooper Cameron Corp. 1,053,056 2,944,400 3,997,456
57,100 159,800 216,900 Diamond Offshore Drilling 2,261,731 6,329,678 8,591,409
42,500 118,900 161,400 @ Grant Prideco, Inc. 957,100 2,677,628 3,634,728
13,400 -- 13,400 @ Lone Star Technologies 598,310 -- 598,310
67,700 220,300 288,000 @ National-Oilwell, Inc. 2,335,650 7,600,350 9,936,000
8,600 -- 8,600 @ Noble Drilling Corp. 367,220 -- 367,220
24,800 69,400 94,200 Santa Fe Intl. Corp. 914,624 2,559,472 3,474,096
7,200 35,200 42,400 @ Smith Intl., Inc. 559,440 2,735,040 3,294,480
21,300 59,600 80,900 Tidewater, Inc. 999,183 2,795,836 3,795,019
28,300 79,400 107,700 @ Varco Intl., Inc. 681,747 1,912,746 2,594,493
37,600 100,500 138,100 @ Weatherford Intl., Inc. 2,119,512 5,665,185 7,784,697
----------- ----------- -----------
12,847,573 35,220,335 48,067,908
----------- ----------- -----------
PHARMACEUTICALS: 3.38%
25,600 71,500 97,100 @ Gilead Sciences, Inc. 1,324,800 3,700,125 5,024,925
27,437 78,000 105,437 @ King Pharmaceuticals, Inc. 1,387,763 3,945,240 5,333,003
17,300 132,500 149,800 @ Medimmune, Inc. 689,751 5,282,775 5,972,526
----------- ----------- -----------
3,402,314 12,928,140 16,330,454
----------- ----------- -----------
PIPELINES: 1.85%
44,400 124,600 169,000 @ Aquila, Inc. 1,318,680 3,700,620 5,019,300
21,000 58,900 79,900 Dynegy, Inc. 1,035,300 2,903,770 3,939,070
----------- ----------- -----------
2,353,980 6,604,390 8,958,370
----------- ----------- -----------
RETAIL: 8.75%
31,000 87,200 118,200 @ Abercrombie & Fitch Co. 1,278,130 3,595,256 4,873,386
51,100 143,300 194,400 @ American Eagle Outfitters 1,877,925 5,266,275 7,144,200
36,000 100,000 136,000 @ AnnTaylor Stores Corp. 1,228,320 3,412,000 4,640,320
33,000 93,500 126,500 @ Best Buy Co., Inc. 1,753,950 4,969,525 6,723,475
12,600 -- 12,600 @ BJ's Wholesale Club, Inc. 614,250 -- 614,250
51,300 145,500 196,800 @ Dollar Tree Stores, Inc. 1,322,514 3,750,990 5,073,504
21,600 61,400 83,000 Tiffany & Co. 746,928 2,123,212 2,870,140
66,400 242,800 309,200 TJX Cos., Inc. 2,221,744 8,124,088 10,345,832
----------- ----------- -----------
11,043,761 31,241,346 42,285,107
----------- ----------- -----------
SEMICONDUCTORS: 13.33%
22,800 114,600 137,400 @ Analog Devices, Inc. 1,015,740 5,105,430 6,121,170
11,400 31,900 43,300 @ Broadcom Corp. 379,164 1,060,994 1,440,158
55,800 158,300 214,100 @ Cirrus Logic, Inc. 1,104,840 3,134,340 4,239,180
63,800 179,400 243,200 @ Elantec Semiconductor, Inc. 2,041,600 5,740,800 7,782,400
16,100 45,800 61,900 @ International Rectifier Corp. 966,966 2,750,748 3,717,714
65,900 183,900 249,800 @ Intersil Corp. 2,147,681 5,993,301 8,140,982
19,500 54,700 74,200 @ KLA-Tencor Corp. 1,006,590 2,823,614 3,830,204
62,300 174,100 236,400 @ Lam Research Corp. 1,720,726 4,808,642 6,529,368
22,800 64,000 86,800 @ Nvidia Corp. 1,951,908 5,479,040 7,430,948
25,000 69,900 94,900 @ PMC - Sierra, Inc. 782,500 2,187,870 2,970,370
49,200 138,200 187,400 @ Teradyne, Inc. 1,960,620 5,507,270 7,467,890
54,900 153,300 208,200 @ Transmeta Corp. 667,584 1,864,128 2,531,712
14,300 40,000 54,300 @ Xilinx, Inc. 589,875 1,650,000 2,239,875
----------- ----------- -----------
16,335,794 48,106,177 64,441,971
----------- ----------- -----------
SOFTWARE: 5.44%
41,400 74,400 115,800 @ Manugistics Group, Inc. 1,486,674 2,671,704 4,158,378
25,400 106,800 132,200 @ Mercury Interactive Corp. 1,504,696 6,326,832 7,831,528
22,900 142,000 164,900 @ Micromuse, Inc. 872,490 5,410,200 6,282,690
72,100 216,900 289,000 @ Peregrine Systems, Inc. 1,996,449 6,005,961 8,002,410
----------- ----------- -----------
5,860,309 20,414,697 26,275,006
----------- ----------- -----------
TELECOMMUNICATIONS: 10.74%
69,900 195,200 265,100 @ Echostar Communications Corp. 2,138,241 5,971,168 8,109,409
45,300 163,400 208,700 @ Emulex Corp. 1,571,457 5,668,346 7,239,803
50,200 141,300 191,500 @ Finisar Corp. 755,510 2,126,565 2,882,075
26,200 240,100 266,300 @ JDS Uniphase Corp. 437,802 4,012,071 4,449,873
50,600 141,200 191,800 @ RF Micro Devices, Inc. 1,319,648 3,682,496 5,002,144
34,900 75,700 110,600 Scientific-Atlanta, Inc. 1,832,599 3,975,007 5,807,606
44,000 123,400 167,400 @ Sonus Networks, Inc. 1,133,440 3,178,784 4,312,224
63,900 175,600 239,500 @ Tycom Ltd. 1,137,420 3,125,680 4,263,100
109,600 307,500 417,100 @ Utstarcom, Inc. 2,578,888 7,235,475 9,814,363
----------- ----------- -----------
12,905,005 38,975,592 51,880,597
----------- ----------- -----------
TRANSPORTATION: 0.59%
11,600 32,500 44,100 Expeditors Intl. of Washington, Inc. 746,924 2,092,675 2,839,599
----------- ----------- -----------
TOTAL COMMON STOCK
(COST: $116,605,509, $326,362,242,
$442,967,751) 124,076,329 347,565,679 471,642,008
----------- ----------- -----------
PRINCIPAL AMOUNT
SHORT-TERM INVESTMENTS: 1.09%
REPURCHASE AGREEMENT: 1.09%
985,000 4,270,000 State Street Bank Repurchase Agreement
4.000%, due 06/01/01 985,000 4,270,000 5,255,000
----------- ----------- -----------
TOTAL SHORT-TERM INVESTMENTS
(COST: $985,000, $4,270,000, $5,255,000) 985,000 4,270,000 5,255,000
----------- ----------- -----------
TOTAL INVESTMENTS IN SECURITIES
(COST: $117,590,509, $330,632,242,
$448,222,751) 98.68% 125,061,329 351,835,679 476,897,008
OTHER ASSETS AND LIABILITIES-NET 1.32% 1,629,973 4,745,445 6,375,418
------ ----------- ----------- -----------
NET ASSETS 100.00% 126,691,302 356,581,124 483,272,426
====== =========== =========== ===========
- ----------
@ Non-income producing security
See Accompanying Notes to Unaudited Financial Statements
B-6
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF COMBINATION
On November 2, 2001, the Boards of Pilgrim MidCap Opportunities Fund
("MidCap Opportunities Fund") and Pilgrim MidCap Growth Fund ("MidCap Growth
Fund") (collectively the "Funds"), approved an Agreement and Plan of
Reorganization (the "Plan") whereby, subject to approval by the shareholders of
MidCap Growth Fund, MidCap Opportunities Fund will acquire all the assets of
MidCap 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 MidCap
Opportunities 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 May 31, 2001. The unaudited pro forma portfolio of
investments, and unaudited pro forma statement of assets and liabilities reflect
the financial position of MidCap Opportunities Fund and MidCap Growth Fund at
May 31, 2001. The unaudited pro forma statement of operations reflects the
results of operations of MidCap Opportunities Fund and MidCap Growth Fund for
the year ended May 31, 2001. 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 MidCap Opportunities Fund and MidCap Growth Fund
under accounting principles generally accepted in the United States of America.
The historical cost of investment securities will be carried forward to the
surviving entity and results of operations of MidCap Opportunities Fund for
pre-combination periods will not be restated.
The unaudited pro forma portfolio of investments, and unaudited pro forma
statement of assets and liabilities and statement of operations should be read
in conjunction with the historical financial statements of the Funds
incorporated by reference in the Statements of Additional Information.
NOTE 2 - SECURITY VALUATION
Investments in equity securities traded on a national securities exchange
or included on the NASDAQ National Market System are valued at the last reported
sale price. Securities traded on an exchange or NASDAQ for which there has been
no sale and securities traded in the over-the-counter-market are valued at the
mean between the last reported bid and ask prices. U.S. Government obligations
are valued by using market quotations or independent pricing services which use
prices provided by market-makers or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics.
All investments quoted in foreign currencies will be valued daily in U.S.
Dollars on the basis of the foreign currency exchange rates prevailing at the
time such valuation is determined by each Fund's Custodian. Securities for which
market quotations are not readily available are valued at their respective fair
values as determined in good faith and in accordance with policies set by the
Board of Directors. Investments in securities maturing in less than 60 days are
valued at cost, which, when combined with accrued interest, approximates market
value.
NOTE 3 - CAPITAL SHARES
The unaudited pro forma net asset value per share assumes additional shares
of common stock issued in connection with the proposed acquisition of MidCap
Growth Fund by MidCap Opportunities Fund as of May 31, 2001. The number of
additional shares issued was calculated by dividing the net asset value of each
Class of MidCap Growth Fund by the respective Class net asset value per share of
MidCap Opportunities Fund.
NOTE 4 - UNAUDITED PRO FORMA ADJUSTMENTS
The accompanying unaudited pro forma financial statements reflect changes
in fund shares as if the merger had taken place on May 31, 2001. MidCap Growth
Fund expenses were adjusted assuming MidCap Opportunities Fund's fee structure
was in effect for the year ended May 31, 2001.
B-7
NOTE 5 - MERGER COSTS
Merger costs are estimated at approximately $125,000 and are not included
in the unaudited pro forma statement of operations since these costs are not
reccurring. These costs represent the estimated expense of both Funds carrying
out their obligations under the Plan and consist of management's estimate of
legal fees, accounting fees, printing costs and mailing charges related to the
Merger. ING Pilgrim Investments LLC, Investment Adviser to the Funds, will bear
half of the cost of the Reorganization. The Funds will bear the other half of
the expenses relating to the proposed Reorganization.
NOTE 6 - FEDERAL INCOME TAXES
It is the policy of the Funds to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute substantially all of their net investment income and any net
realized gains to their shareholders. Therefore, a federal income tax or excise
tax provision is not required. In addition, by distributing during each calendar
year substantially all of its net investment income and net realized capital
gains, each Fund intends not to be subject to any federal excise tax.
The Fund intends to offset any net capital gains with any available capital
loss carryforward until each carryforward has been fully utilized or expires.
The amount of capital loss carryforward, which may offset MidCap Opportunities
Fund's capital gains in any given year may be limited as a result of previous
reorganizations. In addition, no capital gain distribution shall be made until
the capital loss carryforward has been fully utilized or expires.
B-8
PILGRIM MIDCAP GROWTH FUND
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS ON APRIL 4, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoint(s) and JAMES M. HENNESSY AND KIMBERLY A.
ANDERSON or any one or more of them, proxies, with full power of substitution,
to vote all shares of Pilgrim MidCap Growth Fund (the "Fund") a series of
Pilgrim Mutual Funds 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 85258-2034 on April 4, 2002
at 8:00 a.m., local time, and at any adjournment thereof.
This proxy will be voted as instructed. If no specification is made, the
proxy will be voted "FOR" the proposals.
Please vote, date and sign this proxy and return it promptly in the
enclosed envelope.
Please indicate your vote by an "x" in the appropriate box below.
THE BOARD OF 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 MidCap Growth Fund by Pilgrim MidCap
Opportunities Fund in exchange for Class A, B, C, and Q shares of common stock
of Pilgrim MidCap Opportunities Fund and the assumption by Pilgrim MidCap
Opportunities Fund of all of the liabilities of Pilgrim MidCap Growth Fund, a
series of Pilgrim Mutual Funds.
For [ ] Against [ ] Abstain [ ]
This proxy card must be signed exactly as your name(s) appears hereon. If
as an attorney, executor, guardian or in some representative capacity or as an
officer of a corporation, please add titles as such. Joint owners must each
sign.
- ---------------------------------- --------------
Signature Date
- ---------------------------------- --------------
Signature (if held jointly) Date
Pilgrim Mutual Funds
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Section 4.3 of Registrant's Declaration of Trust provides the following:
(a) Subject to the exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or Officer of the Trust
shall be indemnified by the Trust to the fullest extent permitted by law
against all liability and against all expenses reasonably incurred or paid
by him in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or having
been a Trustee or Officer and against amounts paid or incurred by him in
the settlement thereof; and
(ii) the word "claim", "action", "suit" or "proceeding" shall apply to all
claims, actions or suits or proceedings (civil, criminal, administrative or
other including appeals), actual or threatened; and the words "liability"
and "expenses" shall include without limitation, attorneys fees, costs,
judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or Officer:
(i) against any liability to the Trust, a Series thereof, or the
Shareholders by reason of a final adjudication by a court or other body
before which a proceeding was brought or that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in reasonable belief that his
action was in the best interest of the Trust; or
(iii) in the event of a settlement or other disposition not involving a
final adjudication as provided in paragraph (b) (i) or (b) (ii) resulting
in a payment by a Trustee or officer, unless there has been a determination
that such Trustee or officer did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office:
(A) by the court or other body approving the settlement or other
disposition; or
(B) based upon the review of readily available facts (as opposed to
full trial-type inquiry) by (x) vote of a majority of the
Disinterested Trustees acting on the matter (provided that a majority
of the Disinterested Trustees then in office act on the matter) or (y)
written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be
entitled, shall continue as to a person who has ceased to be such Trustee
or officer and shall inure to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing contained herein shall
C-1
affect any rights to indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by contract or otherwise under
law.
(d) Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay
such amount if it is ultimately determined that he is not entitled to
indemnification under this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other appropriate
security provided by the recipient, or the Trust shall be insured against
losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on the matter)
or an independent legal counsel in a written opinion shall determine, based
upon a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient ultimately
will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is not
(i) an Interested Person of the Trust (including anyone who has been exempted
from being an Interested Person by any rule, regulation or order of the
Commission), or (ii) involved in the claim, action, suit or proceeding.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("1933 Act") may be permitted to trustees, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the option of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 16. EXHIBITS
(1) (A) Declaration of Trust -- previously filed as an Exhibit to the
Registrant's initial Form N-1A Registration Statement on June 15, 1998
and incorporated herein by reference.
(B) Establishment and Designation of Additional Series and Classes of
Shares of Beneficial Interest, Par Value $0.01 per share, dated May 9,
2001 -- previously filed as an Exhibit to Post-Effective Amendment No.
9 to the Registrant's Registration Statement on Form N-1A on July 3,
2001 and incorporated herein by reference.
(C) Certificate of Amendment to Declaration of Trust dated June 15, 2001
-- previously filed as an Exhibit to Post-Effective Amendment No. 9 to
the Registrant's Registration Statement on Form N-1A on July 3, 2001
and incorporated herein by reference.
C-2
(D) Establishment and Designation of Additional Series and Classes of
Shares of Beneficial Interest, Par Value $0.01 per share -- previously
filed as an Exhibit to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A on August 30, 2001 and
incorporated herein by reference.
(E) Establishment and Designation of Additional Series and Classes of
Shares of Beneficial Interest, Par Value $0.01 per share -- previously
filed as an Exhibit to Post-Effective Amendment No. 13 to the
Registrant's Registration Statement on Form N-1A on October 25, 2001
and incorporated herein by reference.
(F) Establishment and Designation of Additional Series and Classes of
Shares of Beneficial Interest, Par Value $0.01 per share -- previously
filed as an Exhibit to Post-Effective Amendment No. 16 to the
Registrant's Registration Statement on Form N-1A on November 13, 2001
and incorporated herein by reference.
(2) (A) Bylaws -- previously filed as an Exhibit to the Registrant's initial
Form N-1A Registration Statement on June 15, 1998 and incorporated
herein by reference.
(B) Form Amendment to Bylaws -- previously filed as an Exhibit to
Post-Effective Amendment No. 6 to the Registrant's Registration
Statement on Form N-1A on March 1, 2001 and incorporated herein by
reference.
(3) Not Applicable
(4) Form of Agreement and Plan of Reorganization between Pilgrim Mutual Funds,
on behalf of Pilgrim MidCap Growth Fund and Pilgrim Equity Trust, on behalf
of Pilgrim MidCap Opportunities Fund-- filed herewith.
(5) Not Applicable
(6) (A) Form of Investment Management Agreement between Registrant and Pilgrim
Investments, Inc. -- previously filed as an Exhibit to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement of Form
N-1A on March 1, 2001 and incorporated herein by reference.
(B) Form of Investment Management Agreement between Registrant and ING
Pilgrim Investments, LLC -- previously filed as an Exhibit to
Post-Effective Amendment No. 9 to the Registrant's Registration
Statement on Form N-1A on July 3, 2001 and incorporated herein by
reference.
(C) Form of Amended and Restated Schedule A to the Investment Management
Agreement between Registrant and ING Pilgrim Investments, LLC --
previously filed as an Exhibit to Post-Effective Amendment No. 13 to
the Registrant's Registration Statement on Form N-1A on October 25,
2001 and incorporated herein by reference.
(D) Form of Amended and Restated Schedule A to the Investment Management
Agreement between Registrant and ING Pilgrim Investments, LLC --
previously filed as an Exhibit to Post-Effective Amendment No. 16 to
the Registrant's Registration Statement on Form N-1A on November 13,
2001 and incorporated herein by reference.
(E) Form of Sub-Advisory Agreement between ING Pilgrim Investments, LLC
and Aeltus Investment Management, Inc. -- previously filed as an
Exhibit to Post-Effective Amendment No. 9 to the Registrant's
Registration Statement on July 3, 2001 and incorporated herein by
reference.
(F) Form of Amended and Restated Schedule A to the Sub-Advisory Agreement
between ING Pilgrim Investments, LLC and Aeltus Investment Management,
Inc. -- previously filed as an Exhibit to Post-Effective Amendment No.
13 to Registrant's Registration Statement on Form N-1A on October 25,
2001 and incorporated herein by reference.
C-3
(G) Form of Sub-Advisory Agreement between ING Pilgrim, LLC and Brandes
Investment Partners, L.P. -- previously filed as an Exhibit to
Registrant's Registration Statement on Form N-1A on November 13, 2001
and incorporated herein by reference.
(7) (A) Form of Underwriting Agreement between Registrant and Pilgrim
Securities, Inc. -- previously filed as an Exhibit to Post-Effective
Amendment No. 6 to Registrant's Registration Statement on Form N-1A on
March 1, 2001 and incorporated herein by reference.
(B) Form of Underwriting Agreement between Registrant and Pilgrim
Securities, Inc. -- previously filed as an Exhibit to Post-Effective
Amendment No. 9 to Registrant's Registration Statement on Form N-1A on
July 3, 2001 and incorporated herein by reference.
(C) Form of Amended and Restated Underwriting Agreement between Registrant
and Pilgrim Securities, Inc. -- previously filed as an Exhibit to
Post-Effective Amendment No. 12 to Registrant's Registration Statement
on Form N-1A on October 1, 2001 and incorporated herein by reference.
(D) Form of Second Amended and Restated Underwriting Agreement between
Registrant and Pilgrim Securities, Inc. -- previously filed as an
Exhibit to Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A on October 25, 2001 and
incorporated herein by reference.
(E) Form of Selling Group Agreement -- previously filed as an Exhibit to
Post-Effective Amendment No. 8 to the Registrant's Registration
Statement on Form N-1A on April 30, 2001 and incorporated herein by
reference.
(F) Form of Financial Institutions Selling Group Agreement -- previously
filed as an Exhibit to Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A on April 30, 2001 and incorporated
herein by reference.
(8) Not Applicable
(9) (A) Form of Custodian Agreement -- previously filed as an Exhibit to
Post-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form N-1A on July 28, 1998 and incorporated herein by
reference.
(B) Form of Custody Agreement between the Registrant and State Street Bank
and Trust -- previously filed as an Exhibit to Post-Effective
Amendment No. 9 to the Registrant's Registration Statement on Form
N-1A on July 3, 2001 and incorporated herein by reference.
(C) Form of Custody and Investment Accounting Agreement between Registrant
and State Street Bank and Trust Company -- previously filed as an
Exhibit to Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A on October 25, 2001 and
incorporated herein by reference.
(D) Form of Custodian Service and Monitoring Agreement between the
Registrant, MBIA Insurance Corporation and Statement Street Bank and
Trust Co. -- previously filed as an Exhibit to Post-Effective
Amendment No. 9 to the Registrant's Registration Statement on Form
N-1A on July 3, 2001 and incorporated herein by reference.
C-4
(E) Form of Amended and Restated Schedule A with respect to the Custodian
Service and Monitoring Agreement between the Registrant, MBIA
Insurance Corporation, and State Street Bank and Trust Company --
previously filed as an Exhibit to Post-Effective Amendment No. 13 to
the Registrant's Registration Statement on Form N-1A on October 25,
2001 and incorporated herein by reference.
(10) (A) Form of Rule 12b-1 Plan -- previously filed as an Exhibit to
Pre-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form N-1A on January 4, 2000 and incorporated herein by
reference.
(B) Form of Amended and Restated 12b-1 Plan -- previously filed as an
Exhibit to Post-Effective Amendment No. 9 to the Registrant's
Registration Statement on Form N-1A on July 3, 2001 and incorporated
herein by reference.
(C) Form of Amended and Restated 12b-1 Plan -- previously filed as an
Exhibit to Post-Effective Amendment No. 12 to the Registrant's
Registration Statement on Form N-1A on October 1, 2001 and
incorporated herein by reference.
(D) Form of Third Amended and Restated 12b-1 Plan -- previously filed as
an Exhibit to Post-Effective Amendment No. 13 to the Registrant's
Registration Statement on Form N-1A on October 25, 2001 and
incorporated herein by reference.
(E) Form of Rule 18f-3 Plan -- previously filed as an Exhibit to
Pre-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form N-1A on January 4, 2000 and incorporated herein by
reference.
(F) Form of Amended Rule 18f-3 Plan -- previously filed as an Exhibit to
Post-Effective Amendment No. 9 to the Registrant's Registration
Statement on Form N-1A on July 3, 2001 and incorporated herein by
reference.
(G) Form of Amended and Restated Multiple Class Plan pursuant to Rule
18f-3 -- previously filed as an Exhibit to Post-Effective Amendment
No. 13 to the Registrant's Registration Statement on Form N-1A on
October 25, 2001 and incorporated herein by reference.
(11) Form of Opinion and Consent of Counsel -- filed herewith.
(12) Form of Opinion and Consent of Counsel Supporting Tax Matters and
Consequence -- filed herewith.
(13) (A) Other Material Contracts -- previously filed as an Exhibit to the
Registrant's initial Form N-1A Registration Statement on June 15, 1998
and incorporated herein by reference.
(B) Other Material Contracts -- previously filed as an Exhibit to
Pre-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form N-1A on July 28, 1998 and incorporated herein by
reference.
(C) Form of Transfer Agency Agreement between ING Pilgrim Investments, LLC
and DST Systems, Inc. -- previously filed as an Exhibit to
Post-Effective Amendment No. 9 to the Registrant's Registration
Statement on Form N-1A on July 3, 2001 and incorporated herein by
reference.
(D) Form of Amendment to Transfer Agency Agreement between ING Pilgrim
Investments, LLC and DST Systems, Inc. -- previously filed as an
Exhibit to Post-Effective Amendment No. 13 to the Registrant's
Registration Statement on Form N-1A on October 25, 2001 and
incorporated herein by reference.
C-5
(E) Administrative Services Agreement between Pilgrim Equity Trust and ING
Pilgrim group, LLC -- previously filed as an Exhibit to Post-Effective
Amendment No. 9 to the Registrant's Registration Statement on Form
N-1A on July 3, 2001 and incorporated herein by reference.
(F) Form of Administrative Services Agreement between Pilgrim Equity Trust
and ING Pilgrim Group, LLC -- previously filed as an Exhibit to
Post-Effective Amendment No. 12 to the Registrant's Registration
Statement on Form N-1A on October 1, 2001 and incorporated herein by
reference.
(G) Form of Third Amended and Restated Administrative Services Agreement
between Pilgrim Equity Trust and ING Pilgrim Group, LLC -- previously
filed as an Exhibit to Post-Effective Amendment No. 13 to the
Registrant's Registration Statement on Form N-1A on October 25, 2001
and incorporated herein by reference.
(H) Form and Financial Guaranty Agreement between MBIA Insurance
Corporation, ING Pilgrim Investments, LLC, Aeltus Investment
Management, INC. and Pilgrim Equity Trust -- previously filed as an
Exhibit to Post-Effective Amendment No. 9 to the Registrant's
Registration Statement on Form N-1A on July 3, 2001 and incorporated
herein by reference.
(I) Form of Expense Limitation Agreement between ING Pilgrim Investments,
LLC, Aeltus Investment Management, Inc. and Pilgrim Equity Trust
(Pilgrim Principal Protection Fund) -- previously filed as an Exhibit
to Post-Effective Amendment No. 9 to the Registrant's Registration
Statement on Form N-1A on July 3, 2001 and incorporated herein by
reference.
(J) Form of Expense Limitations Agreement among ING Pilgrim Investments,
LLC, AW Advisors, LLC and Pilgrim Equity Trust (Pilgrim Biotechnology
Fund) -- to be filed in a subsequent post-effective amendment.
(K) Form of Amended and restated Expense Limitation Agreement between ING
Pilgrim Investments, LLC, Aeltus Investment Management, Inc. and
Pilgrim Equity Trust -- previously filed as an Exhibit to
Post-Effective Amendment No. 13 to the Registrant's Registration
Statement on Form N-1A on October 25, 2001 and incorporated herein by
reference.
(L) Form of Expense Limitation Agreement -- to be filed in a subsequent
post-effective amendment.
(14) Consent of KPMG LLP -- filed herewith.
(15) Not Applicable
(16) Powers of Attorney -- filed herewith.
(17) Not Applicable
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) under the Securities Act (17 CFR
230.145(c)), the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
C-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), the Registrant has duly caused this Registration Statement on Form
N-14 to be signed on its behalf by the undersigned, thereunto duly authorized,
in the city of Scottsdale and the State of Arizona on the 12th day of December,
2001.
PILGRIM EQUITY TRUST
By: /s/ Kimberly A. Anderson
------------------------------------
Kimberly A. Anderson
Vice President and Secretary
Pursuant to the requirements of the 1933 Act, this Registration Statement
has been signed below by the following persons in the capacities and on the date
indicated.
Signature Title Date
--------- ----- ----
- ----------------------- Trustee and Chairman December 12, 2001
John G. Turner*
- ----------------------- President and Chief Executive December 12, 2001
James M. Hennessy* Officer
- ----------------------- Senior Vice President and
Michael J. Roland* Principal Financial Officer December 12, 2001
- ----------------------- Trustee December 12, 2001
Paul S. Doherty*
- ----------------------- Trustee December 12, 2001
Alan L. Gosule*
C-7
Signature Title Date
--------- ----- ----
- ----------------------- Trustee December 12, 2001
Walter H. May, Jr.*
- ----------------------- Trustee December 12, 2001
Thomas J. McInerney*
- ----------------------- Trustee December 12, 2001
Jock Patton*
- ----------------------- Trustee December 12, 2001
David W.C. Putnam*
- ----------------------- Trustee December 12, 2001
Blaine E. Rieke*
- ----------------------- Trustee December 12, 2001
Richard A. Wedemeyer*
* By: /s/ Kimberly A. Anderson
------------------------
Kimberly A. Anderson
Attorney-in-Fact**
** Executed pursuant to powers of attorney filed herewith.
C-8
EXHIBIT INDEX
(4) Form of Agreement and Plan of Reorganization between Pilgrim Mutual
Funds, on behalf of Pilgrim MidCap Growth Fund, and Pilgrim Equity
Trust, on behalf of Pilgrim MidCap Opportunities Fund
(11) Form of Opinion and Consent of Counsel
(12) Form of Opinion and Consent of Counsel supporting tax matters and
consequences
(14) Consent of KPMG LLP
(16) Powers of Attorney