SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
(1) SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __)
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
(X) Preliminary Proxy Statement ( ) Confidential, for Use of the
( ) Definitive Proxy Statement Commission Only (as permitted by
( ) Definitive Additional Materials Rule 14c-6(e)(2)
( ) Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
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Pilgrim Advisory Funds, Inc.
Pilgrim Bank and Thrift Fund, Inc
Pilgrim Government Securities Income Fund, Inc.
Pilgrim Investment Funds, Inc.
Pilgrim Mutual Funds
Pilgrim Prime Rate Trust
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
(X) No fee required.
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined.)
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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( ) Fee paid with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date File
<PAGE>
Pilgrim Funds
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
September 1, 1999
Dear Shareholder:
The parent company of Pilgrim Investments, Inc., the investment adviser to
the Pilgrim Funds, is being acquired by ReliaStar Financial Corp. ReliaStar is a
publicly held life insurance holding company. Pilgrim Investments and its staff
and its sub-advisers are currently expected to continue to manage the Funds
following the transaction.
The laws regulating investment companies require that, in connection with the
change in control of Pilgrim Investments, the shareholders of the Funds approve
new advisory contracts and, as applicable, sub-advisory contracts to take effect
after the transaction. These new contracts are substantially the same as those
currently in effect. At the Shareholder meeting on October 28, 1999, you will be
asked to approve these new contracts. You will also be asked to elect new
Directors/Trustees for each of the Funds. Most of the Funds will also be asked
to ratify the independent auditors for the Funds.
After careful consideration, the Board of Directors/Trustees of the Funds
unanimously approved each of the proposals and recommends that shareholders vote
"FOR" each proposal.
Your vote is important regardless of the number of shares you own. In order to
avoid the added cost of follow-up solicitations and possible adjournments,
please take a few minutes to read the proxy statement and cast your vote. It is
important that your vote be received by no later than October 27, 1999.
The Funds are using Shareholder Communications Corporation, a professional proxy
solicitation firm, to assist shareholders in the voting process. As the date of
the Meeting approaches, if we have not already heard from you, you may receive a
telephone call from Shareholder Communications Corporation reminding you to
exercise your right to vote.
We appreciate your participation and prompt response in this matter and thank
you for your continued support.
Sincerely,
ROBERT W. STALLINGS,
President and Chairman of the Board
<PAGE>
Pilgrim Funds
Pilgrim Asia-Pacific Equity Fund Pilgrim LargeCap Growth Fund
Pilgrim Balanced Fund Pilgrim LargeCap Leaders Fund
Pilgrim Bank and Thrift Fund Pilgrim MagnaCap Fund
Pilgrim Convertible Fund Pilgrim MidCap Growth Fund
Pilgrim Emerging Countries Fund Pilgrim MidCap Value Fund
Pilgrim Government Securities Income Fund Pilgrim Money Market Fund
Pilgrim High Yield Fund Pilgrim Prime Rate Trust
Pilgrim High Yield Fund II Pilgrim SmallCap Growth Fund
Pilgrim International Core Growth Fund Pilgrim Strategic Income Fund
Pilgrim International SmallCap Growth Fund Pilgrim Worldwide Growth Fund
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 331-1080
Notice of Special Meeting of Shareholders to be Held on October 28, 1999
To the Shareholders:
A Special Meeting of Shareholders of each Fund listed above will be held on
October 28, 1999 at 10:00 a.m., local time, at 40 North Central Avenue, Suite
1200, Phoenix, Arizona 85004 for the following purposes:
1. To elect twelve directors/trustees to serve until their successors are
elected and qualified;
2. To approve new Investment Advisory Agreements between the Funds and Pilgrim
Investments, Inc. ("Pilgrim Investments") to reflect the acquisition of
Pilgrim Investments by ReliaStar Financial Corp. ("ReliaStar"), with no
change in the advisory fee payable to Pilgrim Investments;
3. (a) For shareholders of the Pilgrim Asia-Pacific Equity Fund, to approve
a new Portfolio Management Agreement among HSBC Asset Management
Americas, Inc., HSBC Asset Management Hong Kong Limited (collectively,
"HSBC") and Pilgrim Investments to reflect the acquisition of Pilgrim
Investments by ReliaStar, with no change in the sub-advisory fee
payable to HSBC;
(b) For shareholders of the Pilgrim International Core Growth, Worldwide
Growth, International SmallCap Growth, Emerging Countries, LargeCap
Growth, MidCap Growth, SmallCap Growth and Convertible Funds, to
approve a new Portfolio Management Agreement between Pilgrim
Investments and Nicholas-Applegate Capital Management ("NACM") to
reflect the acquisition of Pilgrim Investments by ReliaStar, with no
change in the sub-advisory fee payable to NACM; and
4. For shareholders of each Fund except Pilgrim Prime Rate Trust, to ratify
the appointment of KPMG LLP as independent auditors for the Funds for the
fiscal year ending June 30, 2000;
5. To transact such other business as may properly come before the Meeting of
Shareholders or any adjournments thereof.
Shareholders of record at the close of business on August 17, 1999 are
entitled to notice of, and to vote at, the Meeting. Your attention is called to
the accompanying Proxy Statement. Regardless of whether you plan to attend the
meeting, PLEASE COMPLETE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY CARD so
that a quorum will be present and a maximum number of shares may be voted. If
you are present at the meeting, you may change your vote, if desired, at that
time.
By Order of the Board of Directors/Trustees
JAMES M. HENNESSY, Secretary
September 1, 1999
<PAGE>
Pilgrim Asia-Pacific Equity Fund Pilgrim LargeCap Growth Fund
Pilgrim Balanced Fund Pilgrim LargeCap Leaders Fund
Pilgrim Bank and Thrift Fund Pilgrim MagnaCap Fund
Pilgrim Convertible Fund Pilgrim MidCap Growth Fund
Pilgrim Emerging Countries Fund Pilgrim MidCap Value Fund
Pilgrim Government Securities Income Fund Pilgrim Money Market Fund
Pilgrim High Yield Fund Pilgrim Prime Rate Trust
Pilgrim High Yield Fund II Pilgrim SmallCap Growth Fund
Pilgrim International Core Growth Fund Pilgrim Strategic Income Fund
Pilgrim International SmallCap Growth Fund Pilgrim Worldwide Growth Fund
PROXY STATEMENT
Special Meeting of Shareholders
to be held on October 28, 1999
A Special Meeting (the "Meeting") of Shareholders of each Fund listed above
will be held on October 28, 1999 at 10:00 a.m., local time, at 40 North Central
Avenue, Suite 1200, Phoenix, Arizona 85004 for the following purposes:
1. To elect twelve directors/trustees to serve until their successors are
elected and qualified;
2. To approve new Investment Advisory Agreements between the Funds and Pilgrim
Investments, Inc. ("Pilgrim Investments") to reflect the acquisition of
Pilgrim Investments by ReliaStar Financial Corp. ("ReliaStar"), with no
change in the advisory fee payable to Pilgrim Investments;
3. (a) For shareholders of the Pilgrim Asia-Pacific Equity Fund, to approve a
new Portfolio Management Agreement among HSBC Asset Management
Americas, Inc., and HSBC Asset Management Hong Kong Limited
(collectively, "HSBC") and Pilgrim Investments to reflect the
acquisition of Pilgrim Investments by ReliaStar, with no change
in the sub-advisory fee payable to HSBC;
(b) For shareholders of the Pilgrim International Core Growth, Worldwide
Growth, International SmallCap Growth, Emerging Countries, LargeCap
Growth, MidCap Growth, SmallCap Growth and Convertible Funds, to
approve a new Portfolio Management Agreement between Pilgrim
Investments and Nicholas-Applegate Capital Management ("NACM") to
reflect the acquisition of Pilgrim Investments by ReliaStar, with no
change in the sub-advisory fee payable to NACM; and
4. For shareholders of each Fund except Pilgrim Prime Rate Trust, to ratify
the appointment of KPMG LLP as independent auditors for the Funds for the
fiscal year ending June 30, 2000;
5. To transact such other business as may properly come before the Meeting of
Shareholders or any adjournments thereof.
<PAGE>
This is a combined proxy statement for all of the Funds. Each Fund is a
registered investment company or a series thereof (each investment company is
referred to in this proxy as a "Company"). The following table identifies the
Companies to which this proxy relates and the Funds that are series thereof, if
any:
<TABLE>
<CAPTION>
<S> <C>
Pilgrim Advisory Funds, Inc. Pilgrim Mutual Funds
Asia-Pacific Equity Fund Balanced Fund
LargeCap Leaders Fund Convertible Fund
MidCap Value Fund Emerging Countries Fund
High Yield Fund II
Pilgrim Bank and Thrift Fund, Inc. International Core Growth Fund
International SmallCap Growth
Fund
Pilgrim Government Securities Income Fund, Inc. LargeCap Growth Fund
MidCap Growth Fund
Pilgrim Investment Funds, Inc. Money Market Fund
High Yield Fund SmallCap Growth Fund
MagnaCap Fund Strategic Income Fund
Worldwide Growth Fund
Pilgrim Prime Rate Trust
</TABLE>
The Board of Directors/Trustees is soliciting votes from shareholders of a
Fund only with respect to the particular Proposals that affect that Fund. The
following table identifies the Funds entitled to vote on each Proposal.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Fund Proposal 1 Proposal 2 Proposal 3(a) Proposal 3(b) Proposal 4
- ---- ---------- ---------- ------------- ------------- ----------
Asia-Pacific Equity |X| |X| |X| |X|
Balanced |X| |X| |X|
Bank and Thrift |X| |X| |X|
Convertible |X| |X| |X| |X|
Emerging Countries |X| |X| |X| |X|
Government Securities Income |X| |X| |X|
High Yield |X| |X| |X|
High Yield II |X| |X| |X|
International Core Growth |X| |X| |X| |X|
International SmallCap Growth |X| |X| |X| |X|
LargeCap Growth |X| |X| |X| |X|
LargeCap Leaders |X| |X| |X|
MagnaCap |X| |X| |X|
MidCap Growth |X| |X| |X| |X|
MidCap Value |X| |X| |X|
Money Market |X| |X| |X|
Prime Rate Trust |X| |X|
SmallCap Growth |X| |X| |X| |X|
Strategic Income |X| |X| |X|
Worldwide Growth |X| |X| |X| |X|
</TABLE>
<PAGE>
GENERAL OVERVIEW
On July 22, 1999, Pilgrim Capital Corporation (NYSE: PFX), the parent
company of Pilgrim Investments, Inc., which is the investment adviser to each
Pilgrim Fund, entered into an agreement (the "Transaction") under which it will
merge into a subsidiary of ReliaStar Financial Corp. (NYSE: RLR) ("ReliaStar").
ReliaStar is a Minneapolis-based holding company whose subsidiaries offer
individuals and institutions life insurance and annuities, employee benefits
products and services, life and health reinsurance, retirement plans, mutual
funds, bank products and personal finance education. Based on revenues,
ReliaStar is the 8th largest publicly held life insurance holding company in the
United States and at March 31, 1999, had $23.2 billion in assets under
management and life insurance in force of $304.7 billion. Completion of the
acquisition is contingent upon, among other things, approval by the
Directors/Trustees and the shareholders of the Pilgrim Funds and certain
regulatory approvals. The closing of the acquisition is scheduled for the fourth
quarter of 1999.
In the Transaction, ReliaStar will issue to stockholders of Pilgrim Capital
Corporation $12.50 in cash and .50 of a share of ReliaStar common stock for each
share of Pilgrim common stock held by them, subject to possible adjustments. On
__________, 1999, the closing sale price per share for ReliaStar common stock
was $______. If the average price of ReliaStar common stock shortly before the
completion of the merger were equal to that price, then the value of the
consideration to be received in exchange for each share of Pilgrim common stock
would be $_____, assuming no price adjustment.
Pilgrim Investments as an organization will survive the Transaction.
Pilgrim Investments does not currently anticipate that there will be any changes
in the personnel primarily responsible for management of the Funds as a result
of the acquisition.
PROPOSAL NO. 1
ELECTION OF DIRECTORS/TRUSTEES
The Board of Directors/Trustees has nominated thirteen individuals (the
"Nominees") for election to the Board of each Company and, under this Proposal
No. 1, shareholders of the Funds are being asked to elect each of these
Nominees. Pertinent information about each Nominee is set forth below. Each
Nominee has indicated a willingness to serve if elected. If elected, each
Nominee will hold office until his or her successor is elected and qualified.
The Nominees are being nominated in connection with the acquisition of
Pilgrim Capital Corporation by ReliaStar. In evaluating the Nominees, the
Director/Trustees took into account their background and experience, including
their familiarity with issues realting to these types of funds and investments
as well as their careers in business, finance, marketing and other areas. The
Board also considered the increase in Director/Trustee fees that will result
from the increase in the number of Directors/Trustees from six to thirteen, and
the potential contribution of the Nominees to the effectiveness of the Board.
Mary A. Baldwin, Al Burton, Jock Patton and Robert W. Stallings are
currently Directors/Trustees of each Company. In selecting the remaining
Nominees, the Board considered the fact that each is a Director/Trustee of the
investment companies in the Northstar family of funds. The Northstar Funds are
managed by Northstar Investment Management Corporation, which is an indirect
subsidiary of ReliaStar. One of the Nominees, John G. Turner, is Chairman and
Chief Executive Officer of ReliaStar. If the Nominees are elected and the
Transaction is consummated, the Nominees will constitute the "New Board."
<PAGE>
Information Regarding Nominees
In evaluating the Nominees, the Directors/Trustees took into account their
background and experience, including their familiarity with the issues relating
to these types of Funds and investments as well as their careers in business,
finance, marketing and other areas. Below are the names, ages, business
experience during the past five years and other directorships of the Nominees
(as furnished to the Companies). An asterisk (*) has been placed next to the
name of each Nominee who would constitute an "interested person," as defined in
the Investment Company Act of 1940 by virtue of that person's affiliation with
any of the Funds or Pilgrim Investments.
Name and Age Principal Occupation for the Last Five Years
- ------------ --------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Mary A. Baldwin, Ph.D (59) Realtor, Coldwell Banker Success Realty (formerly, The Prudential Arizona
Realty) for more than the last five years; Vice President, United States Olympic
Committee (since November); formerly Treasurer, United States Olympic Committee
(November 1992-November 1996); Director or Trustee of Pilgrim Advisory Funds,
Inc., Pilgrim Bank and Thrift Fund, Inc., Pilgrim Government Securities Income
Fund, Inc. Pilgrim Investment Funds, Inc. and Pilgrim Prime Rate Trust (since
April 1995); Trustee of Pilgrim Mutual Funds (since April 1999).
Al Burton (71) President of Al Burton Productions for more than the last five years; formerly
Vice President, First Run Syndication, Castle Rock Entertainment (July
1992-November 1994); Director or Trustee of Pilgrim Bank and Thrift Fund, Inc.,
Pilgrim Government Securities Income Fund, Inc. Pilgrim Investment Funds, Inc.
and Pilgrim Prime Rate Trust (since April 1994); Director of Pilgrim Advisory
Funds, Inc. (since April 1995); and Trustee of Pilgrim Mutual Funds (since April
1999).
Paul S. Doherty (65) President, Doherty, Wallace, Pillsbury and Murphy, P.C., Attorneys. Director,
Tambrands, Inc. Director/Trustee of the Northstar affiliated investment
companies (since October 1993).
Robert B. Goode, Jr. (69) Currently retired. Formerly Chairman of The First Reinsurance Company of
Hartford (1990 - 1991); President and Director of American Skandia Life
Assurance Company (1987-1989). Director/Trustee of the Northstar affiliated
investment companies (since October 1993).
Alan L. Gosule (58) Partner, Rogers & Wells. Director, F.L. Putnam Investment Management Co., Inc.;
Director/Trustee of the Northstar affiliated investment companies (since June
1995).
Mark Lipson *(59) Director, Chairman and Chief Executive Officer of Northstar Investment Management
Management Corporation, Northstar Holding, Inc. and Northstar Distributor, Inc.;
Director of Northstar Adminstrators Corporation; Director and President of Northstar
Funding, Inc.; Trustee and President of Northstar affiliated companies. Formerly
Director, President and Chief Executive Officer of National Securities & Research
Corporation and Director/Trustee and President of the National affiliated investment
companies and certain of National's subsidiaries (prior to August 1993).
Walter H. May (62) Retired. Former Senior Executive for Piper Jaffray, Inc.; Director/Trustee of
the Northstar affiliated investment companies (since April 1996).
<PAGE>
Jock Patton (53) Private Investor; Director of Hypercom Corporation (since January 1999);
Director of Stuart Entertainment, Inc. (since January 1999); Director of JDA
Software Group, Inc. (since January 1999); Formerly Director of Artisoft, Inc.
(August 1994 - July 1998); President and Co-owner, StockVal, Inc. (April
1993-June 1997); Partner and Director, Streich, Lang, P.A. (1972-1993).
Director or Trustee of Pilgrim Advisory Funds, Inc., Pilgrim Bank and Thrift
Fund, Inc., Pilgrim Government Securities Income Fund, Inc. Pilgrim Investment
Funds, Inc. and Pilgrim Prime Rate Trust (since August 1995); Trustee of Pilgrim
Mutual Funds (since April 1999).
David W.C. Putnam (59) President, Clerk and Director of F.L. Putnam Securities Company, Inc., F.L.
Putnam Investment Management Company, Inc., Interstate Power Company, Inc.,
Trust Realty Corp. and Bow Ridge Mining Co.; Director of Anchor Investment
Management Corporation; President and Director/Trustee of Anchor Capital
Accumulation Trust, Anchor International Bond Trust, Anchor Gold and Currency
Trust, Anchor Resources and Commodities Trust and Anchor Strategic Assets Trust;
Director/Trustee of the Northstar affiliated investment companies (since June
1995).
John R. Smith (76) President of New England Fiduciary Company (financial planning) (since 1991);
Chairman of Massachusetts Educational Financing Authority (since 1987); Vice
Chairman of Massachusetts Health and Education Authority. Formerly Financial
Vice President of Boston College (1970 - 1991); Director/Trustee of the
Northstar affiliated investment companies (since June 1995).
Robert W. Stallings* (50) Chairman, Chief Executive Officer and President, Pilgrim Group, Inc. (since
December 1994); Chairman, Pilgrim Investments, Inc. (since December 1994);
Director, Pilgrim Securities, Inc. (since December 1994); Chairman, Chief
Executive Officer and President of each of the Pilgrim Funds (since April 1995);
Chairman and Chief Executive Officer, Pilgrim Capital Corporation (since August
1990); Director and officer of other affiliates of Pilgrim Capital
Corporation. Director or Trustee of Pilgrim Advisory Funds, Inc., Pilgrim Bank
and Thrift Fund, Inc., Pilgrim Government Securities Income Fund, Inc. Pilgrim
Investment Funds, Inc. and Pilgrim Prime Rate Trust (since April 1995); Trustee
of Pilgrim Mutual Funds (since April 1999).
John G. Turner* (59) Chairman and Chief Executive Officer of ReliaStar Financial Corp. and ReliaStar
Life Insurance Co. (since 1993); Chairman of ReliaStar United Services Life
Insurance Company and ReliaStar Life Insurance Company of New York (since 1995);
Chairman of Northern Life Insurance Company (since 1992); Director of Northstar
Investment Management Corporation and affiliates (since October 1993); Director
and Officer of various subsidiaries of ReliaStar Financial Corp.; Chairman and
Director/Trustee of the Northstar affiliated investment companies (since October
1993). Formerly President of ReliaStar Financial Corp. and ReliaStar Life
Insurance Co. (1991 - 1993); Chief Operating Officer of ReliaStar Financial
Corp. (1989 - 1991); President and Chief Operating Officer of ReliaStar Life
Insurance Company (1986 to 1991).
<PAGE>
Name and Age Principal Occupation for the Last Five Years
- ------------ --------------------------------------------
David W. Wallace (75) Chairman of Putman Trust Company, Lone Star Industries and FECO Engineered
Systems, Inc.; President and Director/Trustee of the Robert R. Young Foundation
and Governor of the New York Hospital. Director of UMC Electronics and Zurn
Industries, Inc. Former Chairman and Chief Executive Officer, Todd Shipyards
and Bangor Punta Corporation, and former Chairman and Chief Executive Officer of
National Securities & Research Corporation. Director/Trustee of the Northstar
affiliated investment companies (since October 1993).
</TABLE>
Committees
The Board of Directors/Trustees of each Company has an Audit Committee
whose function is to meet with the independent accountants for the Company in
order to review the scope of the Company's audit, the Company's financial
statements and interim accounting controls; and to meet with management
concerning these matters, among other things. This Committee currently consists
of all of the independent Directors/Trustees of each Company (Mary A. Baldwin,
John P. Burke, Al Burton, Jock Patton, and Walter E. Auch). During the fiscal
year ended June 30, 1999, the Audit Committee met four times. Each member of the
Audit Committee attended 100% of such meetings during the period in which he or
she was a member of the Committee.
The Board of Directors/Trustees of each Company has a Nominating Committee
for the purpose of considering candidates to fill Independent Director/Trustee
vacancies on the Board. The Nominating Committee currently consists of Mary A.
Baldwin, John P. Burke and Al Burton. Each Company currently does not have a
policy regarding whether the Nominating Committee will consider nominees
recommended by shareholders of the Company. The Nominating Committee met once
during the fiscal year ended June 30, 1999. Each member of the Nominating
Committee attended that meeting.
Remuneration of Directors/Trustees and Officers
Each Fund pays each Director/Trustee who is not an "interested person" a
pro rata share, as described below, of (i) an annual retainer of $25,000; (ii)
$2,500 per quarterly and special Board meeting; (iii) $500 per committee
meeting; (iv) $500 per special telephonic meeting; and (v) out-of-pocket
expenses. The pro rata share paid by each Fund is based on the Fund's average
<PAGE>
net assets as a percentage of the average net assets of all the Funds managed by
Pilgrim Investments for which the Directors/Trustees serve in common as
directors/trustees (and, in the case of Walter E. Auch, Funds for which he
serves as an Advisory Officer).
The following table sets forth the compensation paid to each of the current
Directors/Trustees of each Company for the year ended June 30, 1999.
Directors/Trustees who are interested persons of the Companies do not receive
any compensation from the Funds. In the column headed "Total Compensation From
Fund Complex Paid to Directors," the number in parentheses indicates the total
number of boards in the Pilgrim Fund complex on which the Director/Trustee
served during that year.
<TABLE>
<CAPTION>
Compensation from each Company
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total
Pilgrim Compensation
Pilgrim Pilgrim Government Pilgrim Pilgrim Pilgrim From Fund
Advisory Bank and Securities Investment Mutual Prime Rate Complex Paid
Name of Person, Funds Thrift Income Fund Funds Funds Trust to Directors
Position Fund, Inc.
- ----------------
Walter E. Auch(1) $3,000
Director/Trustee/
Advisory Officer
Mary A. Baldwin $34,750
Director/Trustee
John P. Burke $34,750
Director/Trustee
Al Burton $34,750
Director/Trustee
Jock Patton $34,250
Director/Trustee
Robert W. Stallings(2) $0 $0 $0 $0 $0 $0 $0
Director/Trustee and (6 boards)
Chairman
</TABLE>
- ----------------------------------
(1) Mr. Auch was elected as a Director of Pilgrim Bank and Thrift Fund, Inc.
and Pilgrim Prime Rate Trust on May 24, 1999. While he was a Trustee of
Pilgrim Mutual Funds (formerly Nicholas-Applegate Mutual Funds) prior to
that date, Pilgrim Mutual Funds was not part of the Pilgrim Fund complex
until May 24, 1999. Mr. Auch is Advisory Officer, not a director, of
Pilgrim Advisory Funds, Inc., Pilgrim Investment Funds, Inc. and Pilgrim
Government Securities Income Fund, Inc. He is compensated by those
Companies for his services as Advisory Officer at the same rate at which
Directors of those Companies are compensated. For purposes of Proposals 1
through 3, Mr. Auch was treated as an "interested person" as defined in the
Investment Company Act of 1940, because he is a stockholder of ReliaStar.
(2) "Interested person," as defined in the Investment Company Act of 1940,
because of affiliation with Pilgrim Investments.
Interest of Director/Trustee in Transaction
By virtue of his ownership interest in Pilgrim Capital Corporation, Robert
W. Stallings, who is Chairman of the Board, Chief Executive Officer and
President of each Company, may be deemed to have a substantial interest in the
Transaction.
<PAGE>
The effectiveness of this Proposal No. 1 is conditioned on the consummation
of the Transaction. Accordingly, in the event that the Transaction is not
consummated, the current Directors/Trustees will remain in office even if the
Nominees are elected by the shareholders.
Vote Required
Shareholders of each Company must separately approve the election of
Nominees for that Company. For Pilgrim Investment Funds, Inc., Pilgrim
Government Securities Income Fund, Inc. and Pilgrim Prime Rate Trust, the
affirmative vote of a plurality of the shares of the Company represented at the
Meeting is required to approve the election of each Nominee for that Company.
For Pilgrim Mutual Funds, the affirmative vote of a majority of the outstanding
shares of the Company is required to approve the election of each Nominee for
that Company. For each remaining Company, the affirmative vote of a majority of
the shares of that Company voted at the Meeting is required to approve the
election of each Nominee for that Company.
The Board of Directors/Trustees of the Funds, including the Independent
Directors/Trustees, recommends that shareholders vote "FOR" each of the Nominees
under Proposal No. 1.
PROPOSAL NO. 2
APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
Shareholders of the Funds are being asked to approve new Investment
Advisory Agreements (the "New Agreements") between the Funds and Pilgrim
Investments. Approval of the New Agreements is sought so that the management of
each Fund can continue uninterrupted after the Transaction, because the current
Investment Advisory Agreements (the "Current Agreements") may terminate
automatically as a result of the Transaction, which is described in "General
Overview" above.
The Transaction between Pilgrim Capital Corporation and ReliaStar is
scheduled to close on or around November __, 1999. As a result of these
transactions, Pilgrim Capital Corporation will merge into a subsidiary of
ReliaStar, and Pilgrim Investments will become a wholly-owned subsidiary of the
combined entity. The change in ownership of Pilgrim Investments resulting from
this transaction may be deemed by the Rules under the Investment Company Act of
1940 to be an assignment of the Current Agreements. The Current Agreements
provide for their automatic termination upon an assignment. Accordingly, the New
Agreements between Pilgrim Investments and the Funds are proposed for approval
by shareholders of each Fund. Forms of the New Agreements are attached as
Appendices A through G to this proxy statement.
Pilgrim Investments and representatives of ReliaStar have advised the Funds
that currently no change is expected in the investment advisory and other
personnel in connection with the Transaction and that it is currently
anticipated the same persons responsible for management of the Funds under the
Current Agreements will continue to be responsible under the New Agreements.
Pilgrim Investments does not anticipate that the Transaction will cause any
reduction in the quality of services now provided to the Funds or have any
<PAGE>
adverse effect on Pilgrim Investments' ability to fulfill its obligations to the
Funds. Pilgrim Investments has advised the Funds that additional investment
management resources may become available to the Funds and Pilgrim Investments
by virtue of the acquisition of Pilgrim Capital Corporation by ReliaStar. In
particular, the investment personnel and other resources of Northstar Investment
Management Corporation, an indirect subsidiary of ReliaStar and a registered
investment adviser, are expected to become available as additional resources to
Pilgrim Investments, which may be useful in managing the Funds. Northstar
Investment Management Corporation serves as investment adviser to the Northstar
group of funds. Further, Pilgrim Investments has advised the Board of
Directors/Trustees that it is hopeful that exchange privileges will ultimately
be available between the Pilgrim Funds (excluding Pilgrim Prime Rate Trust) and
the Northstar Funds.
The terms of the New Agreements are the same in all materials respects as
the terms of the Current Agreements, which were last approved by each Company's
Board of Directors/Trustees, including a majority of the Directors/Trustees who
were not parties to the Current Agreement or interested persons of such parties,
at meetings held on February 19, 1999 for Pilgrim Mutual Funds and February 1,
1999 for each other Company. The shareholders of Pilgrim Bank and Thrift Fund,
Inc. last approved the Current Agreement for that Fund on October 16, 1997. The
shareholders of Pilgrim High Yield Fund last approved the Current Agreement for
that Fund on April 16, 1998. The shareholders for Pilgrim MagnaCap Fund and
Pilgrim Government Securities Income Fund, Inc. last approved the Current
Agreements for those Funds on April 4, 1995. The shareholders of each Fund
comprising the Pilgrim Mutual Funds last approved the Current Agreement with
respect to those Funds on May 21, 1999. The Current Agreement for Pilgrim
Advisory Funds, Inc. was approved by the then sole shareholder of each Fund
thereof on June 27, 1995. The shareholders of Pilgrim Prime Rate Trust last
approved the Current Agreement for that Fund on August 6, 1998.
At the August 2, 1999 meeting of the Board of Directors/Trustees, each New
Agreement was approved unanimously by the Board of Directors/Trustees, including
all of the Directors/Trustees who are not interested parties to the New
Agreements or interested persons of such parties. Each New Agreement as approved
by the Board of Directors/Trustees is submitted for approval by the shareholders
of the Fund to which the New Agreement applies. Each New Agreement must be voted
upon separately by each Fund to which it pertains.
If the New Agreements are approved by shareholders, they will take effect
immediately after the closing on the Transaction. The New Agreements will remain
in effect for two years from the date they take effect, and, unless earlier
terminated, will continue from year to year thereafter, provided that each such
continuance is approved annually with respect to each Fund (i) by the applicable
Company's Board of Directors/Trustees or by the vote of a majority of the
outstanding voting securities of the particular Fund, and, in either case, (ii)
by a majority of the Company's Directors/Trustees who are not parties to the New
Agreement or "interested persons" of any such party (other than as
Directors/Trustees of the Company).
If the shareholders of any Fund should fail to approve the New Agreement
pertaining to that Fund, the Transaction may not be consummated. If the
Transaction is not consummated, Pilgrim Investments will continue to serve as
adviser for all of the Funds under the Current Agreements.
<PAGE>
The Terms of the New Agreement
The terms of each New Agreement will be the same in all materials respects
as that of its respective Current Agreement. Each New Agreement requires Pilgrim
Investments to provide, subject to the supervision of the Board of
Directors/Trustees, investment advice and investment services to the Fund and to
furnish advice and recommendations with respect to investment of the Fund's
assets and the purchase or sale of its portfolio securities. Pilgrim Investments
also provides investment research and analysis.
There will be no increase in advisory fees for any of the Funds. The annual
advisory fees under the New Agreements for each Fund are listed in Appendix J to
this proxy statement.
Like the Current Agreements, each New Agreement provides that Pilgrim
Investments is not subject to liability to the Fund for any act or omission in
the course of, or connected with, rendering services under the Agreement, except
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties under the Agreement.
Each New Agreement may be terminated by a Fund without penalty upon not
less than 60 days' notice by the Board of Directors/Trustees or by a vote of the
holders of a majority of the Fund's outstanding shares voting as a single class,
or upon not less than 60 days' notice by Pilgrim Investments. Each New Agreement
will terminate automatically in the event of its "assignment" (as defined in the
Investment Company Act).
Information About Pilgrim Investments
Organized in December 1994, Pilgrim Investments is registered as an
investment adviser with the Securities and Exchange Commission. As of July 22,
1999, Pilgrim Investments managed over $7.6 billion in assets. Pilgrim
Investments acquired certain assets of previous advisers to certain of the Funds
in separate transactions that closed on April 7, 1995 and May 21, 1999.
Pilgrim Investments is an indirect, wholly owned subsidiary of Pilgrim
Capital Corporation. Through its subsidiaries, Pilgrim Capital Corporation
engages in the financial services business, focusing on providing investment
advisory, administrative and distribution services to open-end and closed-end
investment companies and structured finance vehicles. After the transaction,
Pilgrim Investments will be an indirect, wholly owned subsidiary of ReliaStar.
Through its subsidiaries, ReliaStar offers individuals and institutions life
insurance and annuities, employee benefits products and services, life and
health reinsurance, retirement plans, mutual funds, bank products and personal
finance education.
Pilgrim Investments does not act as investment adviser to any other
registered investment companies. See Appendix K to this proxy statement for a
list of the directors and principal executive officers of Pilgrim Investments.
Appendix L to this proxy statement identifies fees that have been paid by the
Funds to Pilgrim Investments and certain of its affiliates during each Fund's
most recent fiscal year.
<PAGE>
Expense Limitation Agreements
Pilgrim Investments has entered into expense limitation agreements with
respect to certain of the open-end Funds. The terms of the expense limitation
agreements, as disclosed in the May 24, 1999 prospectuses for the open-end
Pilgrim Funds, will not be affected by the Transaction. Each such expense
limitation agreement will continue in effect after the Transaction for a period
of at least two years.
Evaluation By the Board of Directors/Trustees
In determining whether or not it was appropriate to approve the New
Agreements and to recommend approval to shareholders, the Board of
Directors/Trustees, including the Directors/Trustees who are not interested
persons of Pilgrim Investments, considered various materials and representations
provided by Pilgrim Investments and considered a report provided at the meeting
by representatives of ReliaStar, and was advised by independent legal counsel
with respect to these matters.
Information considered by the Directors/Trustees included, among other
things, the following: (1) Pilgrim Investments' representation that the same
persons responsible for management of the Funds under the Current Agreements are
currently expected to continue to manage the Funds under the New Agreements; (2)
that the compensation to be received by Pilgrim Investments under the New
Agreements is the same as the compensation paid under the Current Agreements;
(3) Pilgrim Investments' respresentation that it will not seek to increase the
rate of advisory fees paid by the Funds for a period of at least two years and
that it will keep any existing expense limitation agreements in effect for a
period of at least two years; (4) that the senior management personnel
responsible for the management of Pilgrim Investments are expected to continue
to be responsible for the management of Pilgrim Investments; (5) that Pilgrim
Investments will have access to the investment personnel and resources of
Northstar Investment Management Corporation; (6) the commonality of the terms
and provisions of the New Agreements and Current Agreements; (7) the
representations by ReliaStar that the integration of the Pilgrim and Northstar
operations could produce benefits to shareholders through economics of scale and
could facilitate the offering of more competitive products; and (8) the belief
that ReliaStar's financial strength and commitment to the advisory business
could enhance the operation of the Funds and Pilgrim Investments in many ways,
including, the ability to engage and retain high-caliber investment personnel,
the ability to add investment research capabilities, and the ability to provide
seed money for new funds. The Board considered the potential benefits that the
Transaction could have upon the ability of Pilgrim Securities, Inc., Distributor
for the Funds, to market the Funds and add additional assets, including the
ability to engage and retain persons to enhance the distribution efforts of the
Distributor, which could be beneficial for the Funds. The Board also considered
the potential benefits if the Northstar Funds were to become available as
exchange options to investors of certain classes of the open-end Pilgrim Funds.
Further, the Board of Directors/Trustees reviewed its determinations
reached at the meetings of the Board of Pilgrim Mutual Funds held on February
19, 1999 and of the Board of the other Companies held on February 1, 1999
respecting the Current Agreements and, with respect to the Current Agreements,
(1) the nature and quality of the services rendered by Pilgrim Investments under
the Agreements; (2) the fairness of the compensation payable to Pilgrim
Investments under the Agreements; (3) the results achieved by Pilgrim
Investments for the Funds; and (4) the personnel, operations and financial
condition, and investment management capabilities, methodologies, and
performance of Pilgrim Investments.
<PAGE>
Based upon its review, the Board determined that, by approving the New
Agreements, the Funds can best be assured that services from Pilgrim Investments
will be provided without interruption. The Board also determined that the New
Agreements are in the best interests of each Fund and its shareholders.
Accordingly, after consideration of the above factors, and such other factors
and information it considered relevant, each Board of Directors/Trustees
unanimously approved the New Agreements and voted to recommend its approval by
each Fund's shareholders.
The effectiveness of this Proposal No. 2 is conditioned on the consummation
of the Transaction. Accordingly, in the event that the Transaction is not
consummated, Pilgrim Investments will continue to manage the Funds pursuant to
the Current Agreements.
Vote Required
Shareholders of each Fund must separately approve the applicable New
Investment Advisory Agreement with respect to that Fund. Approval of this
Proposal No. 2 by a Fund requires an affirmative vote of the lesser of (i) 67%
or more of the shares of the Fund's shares present at the Meeting if more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the outstanding shares of the Fund.
The Board of Directors/Trustees of the Funds, including a majority of the
Independent Directors/Trustees, recommends that you vote "FOR" this Proposal No.
2.
PROPOSAL NO. 3
APPROVAL OF PORTFOLIO MANAGEMENT AGREEMENTS
(Asia-Pacific Equity, Convertible, Emerging Countries, International Core
Growth, International SmallCap Growth, LargeCap Growth, MidCap
Growth, SmallCap Growth and Worldwide Growth Funds Only)
Shareholders of each Fund that is sub-advised by another investment
advisory firm (each a "Sub-Advised Fund") are being asked to approve a new
Portfolio Management Agreement with the sub-adviser (each a "Sub-Adviser") for
that Fund. Shareholder approval of new Portfolio Management Agreements (each a
"New Portfolio Management Agreement") is being sought so that the management of
each Sub-Advised Fund can continue uninterrupted after the Transaction, because
the Transaction may terminate automatically the current Portfolio Management
Agreements (each a "Current Portfolio Management Agreement") for the Sub-Advised
Funds. The New Portfolio Management Agreements are included as Appendices H and
I, respectively.
The following table lists the Funds for which approval is being sought and
identifies the Sub-Adviser for that Fund. While the Board is seeking shareholder
approval of the New Portfolio Management Agreements, these Agreements do not
restrict the Board's ability to terminate or replace the Sub-Adviser for a Fund
at any time in the future, subject to any shareholder approval that may be
required.
<PAGE>
Fund(s) Sub-Adviser
- ------- -----------
Proposal 3(a):
- -------------
Asia-Pacific Equity Fund HSBC Asset Management Americas Inc.
and HSBC Asset Management Hong Kong
Proposal 3(b): Limited
- -------------
Convertible, Emerging Countries,
International Core Growth, Nicholas-Applegate Capital Management
International SmallCap Growth,
LargeCap Growth, MidCap Growth,
SmallCap Growth and Worldwide
Growth Funds
The New Portfolio Management Agreements must be voted upon separately by
each Sub-Advised Fund to which a New Portfolio management Agreement pertains. If
a New Portfolio Management Agreement is approved by shareholders of a
Sub-Advised Fund, it will take effect immediately after the closing on the
Transaction. It will remain in effect for two years from the date it takes
effect, and, unless earlier terminated, will continue in effect from year to
year thereafter, provided that each such continuance is approved at least
annually (i) by the applicable Company's Board of Directors/Trustees or by the
vote of a majority of the outstanding voting securities of the particular Fund,
and, in either case, (ii) by a majority of the Company's Directors/Trustees who
are not parties to the New Portfolio Management Agreement or "interested
persons" of any such party (other than as Directors/Trustees of the Company).
At the August 2, 1999 meeting of the Board of Directors/Trustees, each New
Portfolio Management Agreement was approved unanimously by the Board of
Directors/Trustees, including all of the Directors/Trustees who are not
interested parties to the New Portfolio Management Agreements or interested
persons of such parties.
If the shareholders of a Fund should fail to approve the New Portfolio
Management Agreement that pertains to that Fund, the Sub-Adviser may continue to
serve in that capacity with respect to any other Sub-Advised Funds whose
shareholders approve the New Portfolio Management Agreement. In such an event,
the Board of Directors/Trustees shall meet to consider appropriate action.
Terms of the New Portfolio Management Agreements
Each New Portfolio Management Agreement, like the Current Portfolio
Management Agreements, requires the Sub-Adviser to provide, subject to
supervision by the Board of Directors/Trustees and Pilgrim Investments, a
continuous investment program for the Fund and to determine the composition of
the assets of the Fund, including determination of the purchase, retention, or
sale of the securities, cash and other investments for the Fund, in accordance
with the Fund's investment objectives, policies and restrictions.
<PAGE>
The fees payable to the Sub-Advisers, which is paid by Pilgrim Investments
and not by the Sub-Advised Funds, will remain the same under the New Portfolio
Management Agreements. The sub-advisory fees are set forth on Appendix M hereto.
Like the Current Portfolio Management Agreements, each New Portfolio
Management Agreement provides that the Sub-Adviser is not subject to liability
for any damages, expenses, or losses to the Sub-Advised Fund connected with or
arising out of any investment advisory services rendered under the agreement,
except by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of reckless disregard of its obligations
and duties under the agreement.
The termination provisions of the New Portfolio Management Agreements are
the same as those of the Current Portfolio Management Agreements. Each such
agreement may be terminated by Pilgrim Investments upon 60 days' written notice
to the Sub-Adviser and the Fund, by a Fund upon the vote of a majority of the
Board of Directors/Trustees of the Company or a majority of the outstanding
shares of the applicable Fund, upon 60 days' written notice to Pilgrim
Investments and the respective Sub-Adviser, and by the Sub-Adviser upon three
months' written notice. Each New Portfolio Management Agreement will terminate
automatically in the event of its "assignment" (as defined in the Investment
Company Act).
Information about HSBC
HSBC Asset Management Americas Inc. and HSBC Asset Management Hong Kong
Limited (collectively, HSBC) serve jointly as Sub-Adviser to Asia-Pacific Equity
Fund. The firms are part of HSBC Asset Management, the global investment
advisory and fund management business unit of HSBC Holdings plc. HSBC Asset
Management manages over approximately $49 billion of assets worldwide for a wide
variety of institutional, retail and private clients.
HSBC has managed Asia-Pacific Equity Fund since its inception pursuant to a
Portfolio Management Agreement dated April 27, 1995. The Portfolio Management
Agreement was last approved by the Board of Directors on February 1, 1999 and
was approved by the then sole shareholder of the Fund on June 27, 1995. For the
fiscal year ended June 30, 1999, HSBC Asset Management Americas, Inc., and HSBC
Asset Management Hong Kong, Limited were paid sub-advisory fees of $121,638 with
respect to the Asia-Pacific Equity Fund.
Information about Nicholas-Applegate Capital Management
Nicholas-Applegate Capital Management ("NACM") serves as Sub-Adviser to the
Convertible, Emerging Countries, International Core Growth, International
SmallCap Growth, LargeCap Growth, MidCap Growth, SmallCap Growth and Worldwide
Growth Funds. Founded in 1984, NACM manages over $22 billion of discretionary
assets for numerous clients, including employee benefit plans of corporations,
public retirement systems and unions, university endowments, foundations, and
other institutional investors and individuals. Sub-Advised Funds managed by NACM
are managed by a team of portfolio managers and analysts employed by NACM.
<PAGE>
NACM manages the assets of the Funds listed above as sub-adviser pursuant
to a Portfolio Management Agreement dated May 24, 1999. Prior to May 24, 1999,
NACM served as adviser, rather than sub-adviser, to those Funds. The Portfolio
Management Agreement with NACM was last approved by the Board of Trustees on
February 19, 1999 and by the shareholders of each Fund at a meeting held on May
21, 1999. For the period from May 24, 1999 through June 30, 1999, Pilgrim
Investments paid sub-advisory fees to Nicholas-Applegate in the following
amounts with respect to the following Funds: Convertible Fund -- $101,904;
Emerging Countries Fund -- $116,945; International Core Growth Fund -- $24,809;
International SmallCap Growth Fund -- $58,349; LargeCap Growth Fund -- $33,219;
MidCap Growth Fund -- $108,141; SmallCap Growth Fund -- $158,633; and Worldwide
Growth Fund -- $110,817.
Trustees' Recommendation
In determining whether or not it was appropriate to approve the New
Portfolio Management Agreement for each Fund and to recommend approval to
shareholders, the Board of Trustees considered, among other things, the fact
that the Sub-Advised Funds will continue to be managed by the same Sub-Advisers,
and that the compensation to be received by the Sub-Advisers under the New
Portfolio Management Agreements is the same as the compensation paid under the
Current Portfolio Management Agreements. Further, the Board of
Directors/Trustees reviewed its determinations reached at the meetings of the
Board of Pilgrim Mutual Funds held on February 19, 1999 and the Board of the
other Companies held on February 1, 1999 respecting the Current Portfolio
Management Agreements and, with respect to the Current Portfolio Management
Agreements, (1) the nature and quality of the services rendered by the
Sub-Advisers under the Agreements; (2) the fairness of the compensation payable
to the Sub-Advisers under the Agreements; (3) the results achieved by the
Sub-Advisers for the Funds; and (4) the personnel, operations and financial
condition, and investment management capabilities, methodologies, and
performance of the Sub-Advisers.
Based upon its review, the Board has determined that, by approving the New
Portfolio Management Agreements, the Sub-Advised Funds can best be assured that
services from the Sub-Advisers will be provided without interruption. The Board
believes that retaining the Sub-Advisers is in the best interests of the
Sub-Advised Funds and their shareholders. Accordingly, after consideration of
the above factors, and such other factors and information it considered
relevant, the Board of Trustees unanimously approved the New Portfolio
Management Agreement and voted to recommend its approval by Funds' shareholders.
The effectiveness of this Proposal No. 3 is conditioned on the consummation
of the Transaction. Accordingly, in the event that the Transaction is not
consummated, each Sub-Adviser will continue to manage the respective Sub-Advised
Funds pursuant to the Current Portfolio Management Agreements.
Vote Required
Shareholders of each Sub-Advised Fund must separately approve the
respective New Portfolio Management Agreement with respect to that Fund.
Approval of this Proposal No. 3 by a Fund requires an affirmative vote of the
lesser of (i) 67% or more of the shares of the Fund's shares present at the
<PAGE>
Meeting if more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund.
The Board of Directors/Trustees of the Sub-Advised Funds, including a
majority of the Independent Directors/Trustees, recommends that you vote "FOR"
this Proposal No. 3.
PROPOSAL NO. 4
RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC AUDITORS
(All Funds Except Pilgrim Prime Rate Trust)
For each Company except Pilgrim Prime Rate Trust, shareholders are being
asked to ratify the selection of the accounting firm of KPMG LLP ("KPMG") to act
as the independent auditors for the Company for the fiscal year ending June 30,
2000. Shareholder ratification is not being sought from shareholders of Pilgrim
Prime Rate Trust because the shareholders of that Trust already ratified the
selection of KPMG as independent auditors for the Trust's fiscal year ended
February 29, 2000 at the annual shareholder meeting held on June 29, 1999.
At a meeting of the Board held on May 24, 1999, the Board, including a
majority of Directors/Trustees who are not "interested persons" as defined in
the Investment Company Act, as well as the Directors/Trustees who were members
of the Audit Committee, selected KPMG to act as the independent auditors of each
Company (except Pilgrim Prime Rate Trust) for the fiscal year ending June 30,
2000.
KPMG has served as independent auditors for Pilgrim Advisory Funds, Inc.,
Pilgrim Investment Funds, Inc. and Pilgrim Government Securities Income Fund,
Inc. with respect to their financial statements for the fiscal years ending June
30, 1995 through June 30, 1999. For Pilgrim Bank and Thrift Fund, Inc., KPMG has
served as independent auditors with respect to its financial statements for the
fiscal years ended December 31, 1995 through December 31, 1997 and June 30, 1998
through June 30, 1999.
KPMG has served as independent auditors for Pilgrim Mutual Funds with
respect to its financial statements for the fiscal period ended June 30, 1999. A
different auditing firm served as independent auditors for Pilgrim Mutual Funds
for the fiscal year ended March 31, 1999 and prior years. The Board considered
the services of the former auditing firm to have been satisfactory. However,
based upon a recommendation from Pilgrim Investments, the Trustees of Pilgrim
Mutual Funds deemed it appropriate at a meeting held on May 24, 1999 to select
KPMG as independent auditors. The Board selected KPMG after considering that
firm's experience as independent auditors to investment companies.
The former auditing firm for Pilgrim Mutual Funds resigned as independent
auditors for that Trust on July 13, 1999. The auditor's report on Pilgrim Mutual
Funds' financial statements for any of the prior three fiscal years did not
contain an adverse opinion or disclaimer or opinion and was not qualified or
modified as to uncertainty, audit scope, or accounting principles. During
Pilgrim Mutual Funds' three prior fiscal years, there were no disagreements with
the former auditing firm on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of that firm, would have
caused it to make reference to the subject matter of the disagreement(s) in
connection with its report.
<PAGE>
KPMG are independent auditors and have no direct financial or material
indirect financial interest in the Trust. Representatives of KPMG are not
expected to be at the Meeting but have been given the opportunity to make a
statement if they wish, and will be available should any matter arise requiring
their presence.
Vote Required
Shareholders of each Company (except Pilgrim Prime Rate Trust) must
separately ratify the independent auditors for that Company. For each Company,
the affirmative vote of a majority of the shares of that Company voted at the
Meeting is required to approve this Proposal No. 4.
The Board of Directors/Trustees, including a majority of the Independent
Directors/Trustees, recommends that you vote "FOR" this Proposal No. 4.
GENERAL INFORMATION
Other Matters to Come Before the Meeting
Management of the Funds does not know of any matters to be presented at the
Meeting other than those described in this Proxy Statement. If other business
should properly come before the Meeting, the proxyholders will vote thereon in
accordance with their best judgment.
Section 15(f) of the Investment Company Act
ReliaStar and Pilgrim Capital Corporation have agreed to use their best
efforts to assure compliance with the conditions of Section 15(f) of the
Investment Company Act of 1940. Section 15(f) provides a non-exclusive safe
harbor for an investment adviser or any affiliated persons thereof to receive
any amount or benefit in connection with a transaction that results in a change
in control of or identity of the investment adviser to an investment company as
long as two conditions are met. First, no "unfair burden" may be imposed on the
investment company as a result of the transaction relating to the change of
control, or any express or implied terms, conditions or understandings
applicable thereto. As defined in the Investment Company Act, the term "unfair
burden" includes any arrangement during the two-year period after the change in
control whereby the investment adviser (or predecessor or successor adviser), or
any interested person of any such adviser, receives or is entitled to receive
any compensation, directly or indirectly, from the investment company or its
security holders (other than fees for bona fide investment advisory or other
services), or from any person in connection with the purchase or sale of
securities or other property to, from, or on behalf of the investment company
(other than bona fide ordinary compensation as principal underwriter of the
investment company). Second, during the three year period immediately following
the change of control, at least 75% of an investment company's board of
directors/trustees must not be "interested persons" of the investment adviser or
the predecessor investment adviser within the meaning of the Investment Company
Act.
<PAGE>
Voting Rights
Each share of each class of a Fund is entitled to one vote. Shareholders of
each Fund at the close of business on August 17, 1999 (the "Record Date") will
be entitled to be present and give voting instructions for the Funds at the
Meeting with respect to their shares owned as of such Record Date. For each
Fund, as of August 17, 1999 the total number of shares outstanding and entitled
to vote and the total net assets represented by those shares was: Asia-Pacific
Equity Fund -- 4,450,103 shares representing $28,951,479; Balanced Fund --
1,989,377 shares representing $37,671,713; Bank and Thrift Fund -- 29,127,157
shares representing $670,122,907; Convertible Fund -- 10,538,713 shares
representing $247,860,119; Emerging Countries Fund -- 10,663,857 shares
representing $173,975,013; Government Securities Income Fund -- 2,787,833 shares
representing $33,902,851; High Yield Fund -- 70,086,646 shares representing
$404,538,836; High Yield Fund II -- 6,762,074 shares representing $77,118,376;
International Core Growth Fund -- 2,409,205 shares representing $48,027,039;
International SmallCap Growth Fund -- 5,750,124 shares representing
$157,492,073; LargeCap Growth Fund -- 5,192,109 shares representing
$146,856,884; LargeCap Leaders Fund -- 2,267,673 shares representing
$38,196,801; MagnaCap Fund -- 28,259,622 shares representing $488,903,306;
MidCap Growth Fund -- 13,048,760 shares representing $280,148,616; MidCap Value
Fund -- 3,796,609 shares representing $52,759,859; Money Market Fund --
3,307,993 shares representing $3,307,993; Prime Rate Trust -- 133,445,226 shares
representing $1,212,803,563; SmallCap Growth Fund -- 15,807,535 shares
representing $310,134,374; Strategic Income Fund -- 1,332,776 shares
representing $16,379,071; and Worldwide Growth Fund -- 9,895,453 shares
representing $244,096,419.
For Pilgrim Advisory Funds, Inc. and Pilgrim Mutual Funds, one-third of the
outstanding shares of the Company or Fund on the Record Date, represented in
person or by proxy, must be present to constitute a quorum. For each remaining
Company, a majority of the outstanding shares of the Company or Fund on the
Record Date, represented in person or by proxy, must be present to constitute a
quorum.
If a quorum is not present at the Meeting, or if a quorum is present but
sufficient votes to approve any or all of the Proposals are not received, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. A shareholder vote may be taken on one
or more of the Proposals in this proxy statement prior to any adjournment if
sufficient votes have been received with respect to a Proposal. Any adjournment
will require the affirmative vote of a majority of those shares represented at
the Meeting in person or by proxy. The persons named in the enclosed proxies
will vote in favor of such adjournment those proxies which they are entitled to
vote in favor of any Proposal that has not been adopted, will vote against any
adjournments those proxies required to be voted against any Proposal that has
not been adopted, and will not vote any proxies that direct them to abstain from
voting on such Proposals.
<PAGE>
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,
then the shares represented by such abstention or non-vote will be considered to
be present at the Meeting for purposes of determining the existence of a quorum.
However, abstentions and broker non-votes will be disregarded in determining the
"votes cast" on an issue. For this reason, with respect to matters requiring the
affirmative vote of a majority of the total shares outstanding, an abstention or
broker non-vote will have the effect of a vote against such matters.
To the knowledge of the Funds, as of July 30, 1999, no current
Director/Trustee of the Funds owns 1% or more of the outstanding shares of any
Fund and the officers and Directors/Trustees of the Funds own, as a group, less
than 1% of the shares of each Fund.
Appendix N to this proxy statement lists the persons that, to the knowledge
of the Funds, owned beneficially 5% or more of the outstanding shares of any
class of a Fund as of July 29, 1999.
Solicitation of Proxies
Solicitation of proxies is being made primarily by the mailing of this
Notice and Proxy Statement with its enclosures on or about September 1, 1999.
Shareholders 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, officers of the Companies and employees of Pilgrim
Investments and its affiliates, without additional compensation, may solicit
proxies in person or by telephone, telegraph, facsimile, or oral communication.
The Companies have retained Shareholder Communications Corporation, a
professional proxy solicitation firm, to assist with any necessary solicitation
of proxies. As the meeting date approaches, certain shareholders of the Funds
may receive a telephone call from the professional proxy solicitation firm
asking the shareholder to vote.
A shareholder may revoke the accompanying proxy at any time prior to its
use by filing with his/her respective Company a written revocation or duly
executed proxy bearing a later date. In addition, any shareholder who attends
the Meeting in person may vote by ballot at the Meeting, thereby canceling any
proxy previously given. The persons named in the accompanying proxy will vote as
directed by the proxy, but in the absence of voting directions in any proxy that
is signed and returned, they intend to vote "FOR" each of the proposals and may
vote in their discretion with respect to other matters not now known to the
Board of the Companies that may be presented at the Meeting.
Expenses
Pilgrim Investments or an affiliate will pay the expenses of the Funds in
connection with this Notice and Proxy Statement and the Meeting, including the
printing, mailing, solicitation and vote tabulation expenses, legal fees, and
out of pocket expenses.
<PAGE>
Adviser and Principal Underwriter
Pilgrim Investments is located at 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004, and serves as the investment adviser to each of the
Funds. Pilgrim Securities, Inc., whose address is 40 North Central Avenue, Suite
1200, Phoenix, Arizona 85004, is the Distributor for each of the Funds.
Executive Officers of the Company
The principal executive officers of each of the Companies are listed on
Appendix O hereto.
Shareholder Proposals
It is expected that the next annual meeting of Pilgrim Prime Rate Trust
will be held in June 2000. Any proposals of shareholders that are intended to be
presented at the Trust's next annual meeting must be received at the Trust's
principal executive offices by January 4, 2000 and must comply with all other
legal requirements in order to be included in the Trust's proxy statement and
form of proxy for that meeting.
For all other Funds, proposals of shareholders must be received by the
Company a reasonable time prior to the mailing of the proxy materials for a
meeting of shareholders. The submission by a shareholder of a proposal for
inclusion in the proxy statement does not guarantee that it will be included.
Shareholder proposals are subject to certain regulations under the federal
securities laws.
Reports to Shareholders
Each Company will furnish, without charge, a copy of the Annual Report and
the most recent Semi-Annual Report regarding that Company on request. Requests
for such reports should be directed to Pilgrim Investments at 40 North Central
Avenue, Suite 1200, Phoenix, Arizona 85004 or at (800) 331-1080.
Section 16(a) Beneficial Ownership Reporting Compliance - Pilgrim Prime Rate
Trust
U.S. securities laws require that Pilgrim Prime Rate Trust's shareholders
owning more than ten percent of the outstanding shares of the Trust, Trustees,
and officers, as well as affiliated persons of Pilgrim Investments, report their
ownership of the Trust's shares and any changes in that ownership. Such reports
are filed on Form 3, Form 4 and Form 5 under the Securities and Exchange Act of
1934. Officers, directors and greater than ten percent shareholders are required
to furnish the Trust with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of such forms received by the Trust or
written representation from certain reporting persons that no Form 5's were
required for those persons, the Trust believes that during the fiscal year ended
February 28, 1999 all officers, directors, and greater than ten percent
beneficial owners complied with the applicable Section 16(a) filing requirements
except for the following: Mr. Tiffen, Portfolio Manager, filed one amended Form
4 reporting one transaction, which occurred during the fiscal year ended
February 28, 1999, subsequent to the required date.
<PAGE>
In order that the presence of a quorum at the meeting may be assured, prompt
execution and return of the enclosed proxy is requested. A self-addressed,
postage-paid envelope is enclosed for your convenience.
JAMES M. HENNESSY, Secretary
September 1, 1999
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
<PAGE>
APPENDIX A
Form of Investment Advisory Agreement for Pilgrim Advisory Funds, Inc.
(Pilgrim LargeCap Leaders, MidCap Value and Asia-Pacific Equity Funds)
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the ___ day of _______, 1999,
between Pilgrim Advisory Funds, Inc., a Maryland corporation, (hereinafter
called the "Fund"), and Pilgrim Investments, Inc. a Delaware corporation
(hereinafter called the "Manager").
WITNESSETH
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Fund is authorized to issue shares of beneficial interest in
separate series with each such series representing interests in a separate
portfolio of securities and other assets;
WHEREAS, the Fund currently proposes to offer shares in three series, may
offer shares of additional series in the future, and currently intends to offer
shares of additional series in the future;
WHEREAS, the Fund desires to avail itself of the services of the Manager
for the provision of advisory, management, administrative, and other services
for the Fund; and
WHEREAS, the Manager is willing to render such services to the Fund;
NOW, THEREFORE, in consideration of the premises, the promises and mutual
covenants herein contained, it is agreed between the parties as follows:
1. Appointment. The Fund hereby appoints the Manager, subject to the
direction of the Board of Directors, for the period and on the terms set forth
in this Agreement, to provide advisory, management, administrative, and other
services, as described herein, with respect to each series of the Fund
(individually and collectively referred to herein as "Series"). The Manager
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
In the event the Fund establishes and designates additional series with
respect to which it desires to retain the Manager to render advisory services
hereunder, it shall notify the Manager in writing. If the Manager is willing to
render such services, it shall notify the Fund in writing, whereupon such
additional series shall become a Series hereunder.
2. Services of the Manager. The Manager represents and warrants that it is
registered as an investment adviser under the Investment Advisers Act of 1940
and will maintain such registration for so long as required by applicable law.
Subject to the general supervision of the Board of Directors of the Fund, the
Manager shall provide the following advisory, management, administrative, and
other services with respect to the Series:
<PAGE>
(a) Provide general, overall advice and guidance with respect to the
Series and provide advice and guidance to the Fund's Directors, and oversee
the management of the investments of the Series and the composition of each
Series' portfolio of securities and investments, including cash, and the
purchase, retention and disposition thereof, in accordance with each
Series' investment objective or objectives and policies as stated in the
Fund's current registration statement, which management shall be provided
by others selected by the Manager and approved by the Board of Directors as
provided below or directly by the Manager as provided in Section 3 of this
Agreement;
(b) In the event that the Manager wishes to select others to render
investment management services, the Manager shall analyze, select and
recommend for consideration by the Fund's Board of Directors investment
advisory firms (however organized) to provide investment advice to one or
more of the Series, and, at the expense of the Manager, engage (which
engagement may also be by the Fund) such investment advisory firms to
render investment advice and manage the investments of such Series and the
composition of each such Series' portfolio of securities and investments,
including cash, and the purchase, retention and disposition thereof, in
accordance with the Series' investment objective or objectives and policies
as stated in the Fund's current registration statement (any such firms
approved by the Board of Directors and engaged by the Fund and/or the
Manager are referred to herein as "Portfolio Managers");
(c) Periodically monitor and evaluate the performance of the Portfolio
Managers with respect to the investment objectives and policies of the
Series;
(d) Monitor the Portfolio Managers for compliance with the
investment objective or objectives, policies and restrictions of each
Series, the 1940 Act, Subchapter M of the Internal Revenue Code, and if
applicable, regulations under such provisions, and other applicable law;
(e) If appropriate, analyze and recommend for consideration by the
Fund's Board of Directors termination of a contract with a Portfolio
Manager under which the Portfolio Manager provided investment advisory
services to one or more of the Series;
(f) Supervise Portfolio Managers with respect to the services that
such Portfolio Managers provide under respective portfolio management
agreements ("Portfolio Management Agreements"), although the Manager is not
authorized, except as provided in Section 3 of the Agreement, directly to
make determinations with respect to the investment of a Series' assets or
the purchase or sale of portfolio securities or other investments for a
Series;
(g) Provide all supervisory, management, and administrative services
reasonably necessary for the operation of the Series other than the
investment advisory services performed by the Portfolio Managers,
including, but not limited to, (i) coordinating all matters relating to the
operation of the Series, including any necessary coordination among the
Portfolio Managers, custodian, transfer agent, dividend disbursing agent,
and portfolio accounting agent (including pricing and valuation of the
Series' portfolios), accountants, attorneys, and other parties performing
services or operational functions for the Fund; (ii) maintaining or
supervising the maintenance by third parties selected by the Manager of
such books and records of the Fund and the Series as may be required by
applicable federal or state law; (iii) preparing or supervising the
preparation by third parties selected by the Manager of all federal, state,
and local tax returns and reports relating to the Series required by
applicable law; (iv) preparing and filing and arranging for the
<PAGE>
distribution of proxy materials and periodic reports to shareholders of the
Series as required by applicable law; (v) preparing and arranging for the
filing of registration statements and other documents with the Securities
and Exchange Commission (the "SEC") and other federal and state regulatory
authorities as may be required by applicable law; (vi) taking such other
action with respect to the Fund as may be required by applicable law in
connection with the Series, including without limitation the rules and
regulations of the SEC and other regulatory agencies; and (vii) providing
the Fund, at the Manager's expense, with adequate personnel, office space,
communications facilities, and other facilities necessary for operation of
the Series as contemplated in this Agreement.
(h) Render to the Board of Directors of the Fund such periodic and
special reports as the Board may reasonably request; and
(i) Make available its officers and employees to the Board of
Directors and officers of the Fund for consultation and discussions
regarding the administration and management of the Series and services
provided to the Fund under this Agreement.
3. Investment Management Authority. In the event the Manager wishes to
render investment management services directly to a Series, then with respect to
any such Series, the Manager, subject to the supervision of the Fund's Board of
Directors, will provide a continuous investment program for the Series'
portfolio and determine the composition of the assets of the Series' portfolio,
including determination of the purchase, retention, or sale of the securities,
cash, and other investments contained in the portfolio. The Manager will provide
investment research and conduct a continuous program of evaluation, investment,
sales, and reinvestment of the Series' assets by determining the securities and
other investments that shall be purchased, entered into, sold, closed, or
exchanged for the Series, when these transactions should be executed, and what
portion of the assets of the Series should be held in the various securities and
other investments in which it may invest, and the Manager is hereby authorized
to execute and perform such services on behalf of the Series. To the extent
permitted by the investment policies of the Series, the Manager shall make
decisions for the Series as to foreign currency matters and make determinations
as to, and execute and perform, foreign currency exchange contracts on behalf of
the Series. The Manager will provide the services under this Agreement in
accordance with the Series' investment objective or objectives, policies, and
restrictions as stated in the Fund's Registration Statement filed with the SEC,
as amended. Furthermore:
(a) The Manager will manage the Series so that each will qualify as a
regulated investment company under Subchapter M of the Internal Revenue
Code. In managing the Series in accordance with these requirements, the
Manager shall be entitled to receive and act upon advice of counsel to the
Fund or counsel to the Manager.
(b) The Manager will conform with the 1940 Act and all rules and
regulations thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the Fund's Board of
Directors, and the provisions of the Registration Statement of the Fund
under the Securities Act of 1933 and the 1940 Act, as supplemented or
amended.
(c) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Series as well as any other
investment advisory clients, the Manager may, to the extent permitted by
applicable laws and regulations, but shall not be obligated to, aggregate
the securities to be so sold or purchased with those of its other clients
where such aggregation is not inconsistent with the policies set forth in
the Registration Statement. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction,
will be made by the Manager in a manner that is fair and equitable in the
judgment of the Manager in the exercise of its fiduciary obligations to the
Fund and to such other clients.
<PAGE>
(d) In connection with the purchase and sale of securities of the
Series, the Manager will arrange for the transmission to the custodian for
the Fund on a daily basis, of such confirmation, trade tickets, and other
documents and information, including, but not limited to, Cusip, Cedel, or
other numbers that identify securities to be purchased or sold on behalf of
the Series, as may be reasonably necessary to enable the custodian to
perform its administrative and recordkeeping responsibilities with respect
to the Series. With respect to portfolio securities to be purchased or sold
through the Depository Trust Company, the Manager will arrange for the
prompt transmission of the confirmation of such trades to the Fund's
custodian.
(e) The Manager will assist the custodian or portfolio accounting
agent for the Fund in determining, consistent with the procedures and
policies stated in the Registration Statement for the Fund, the value of
any portfolio securities or other assets of the Series for which the
custodian or portfolio accounting agent seeks assistance or review from the
Manager. The Manager will monitor on a daily basis the determination by the
custodian or portfolio accounting agent for the Fund of the value of
portfolio securities and other assets of the Series and the determination
of net asset value of the Series; provided, however, that the Manager
shall, in the absence of bad faith, have no liability whatsoever for any
mistakes or errors of judgment in providing the foregoing valuation-related
services.
(f) The Manager will make available to the Fund, promptly upon
request, all of the Series' investment records and ledgers as are necessary
to assist the Fund to comply with requirements of the 1940 Act and the
Investment Advisers Act of 1940, as well as other applicable laws. The
Manager will furnish to regulatory authorities having the requisite
authority any information or reports in connection with such services which
may be requested in order to ascertain whether the operations of the Fund
are being conducted in a manner consistent with applicable laws and
regulations.
(g) The Manager will regularly report to the Fund's Board of Directors
on the investment program for the Series and the issuers and securities
represented in the Series' portfolio, and will furnish the Fund's Board of
Directors with respect to the Series such periodic and special reports as
the Directors may reasonably request.
(h) In connection with its responsibilities under this Section 3, the
Manager is responsible for decisions to buy and sell securities and other
investments for the Series' portfolio, broker-dealer selection, and
negotiation of brokerage commission rates. The Manager's primary
consideration in effecting a security transaction will be to obtain the
best execution for the Series, taking into account the factors specified in
the Prospectus and/or Statement of Additional Information for the Fund,
which include price (including the applicable brokerage commission or
dollar spread), the size of the order, the nature of the market for the
security, the timing of the transaction, the reputation, experience and
financial stability of the broker-dealer involved, the quality of the
service, the difficulty of execution, execution capabilities and
operational facilities of the firms involved, and the firm's risk in
positioning a block of securities. Accordingly, the price to the Series in
any transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified, in the
<PAGE>
judgment of the Manager in the exercise of its fiduciary obligations
to the Fund, by other aspects of the portfolio execution services offered.
Subject to such policies as the Board of Directors may determine and
consistent with Section 28(e) of the Securities Exchange Act of 1934, the
Manager shall not be deemed to have acted unlawfully or to have breached
any duty created by this Agreement or otherwise solely by reason of its
having caused the Series to pay a broker-dealer for effecting a portfolio
investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Manager determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the Manager's overall responsibilities with respect to the
Series and to its other clients as to which it exercises investment
discretion. To the extent consistent with these standards and in accordance
with Section 11(a) of the Securities and Exchange Act of 1934 and Rule
11a2-2(T) thereunder, the Manager is further authorized to allocate the
orders placed by it on behalf of the Series to the Manager if it is
registered as a broker-dealer with the SEC, to an affiliated broker-dealer,
or to such brokers and dealers who also provide research or statistical
material or other services to the Series, the Manager or an affiliate of
the Manager. Such allocation shall be in such amounts and proportions as
the Manager shall determine consistent with the above standards, and the
Manager will report on said allocation regularly to the Board of Directors
of the Fund indicating the broker-dealers to which such allocations have
been made and the basis therefor.
4. Conformity with Applicable Law. The Manager, in the performance of its
duties and obligations under this Agreement, shall act in conformity with the
Registration Statement of the Fund and with the instructions and directions of
the Board of Directors of the Fund and will conform to, and comply with, the
requirements of the 1940 Act and all other applicable federal and state laws and
regulations.
5. Exclusivity. The services of the Manager to the Fund under this
Agreement are not to be deemed exclusive, and the Manager, or any affiliate
thereof, shall be free to render similar services to other investment companies
and other clients (whether or not their investment objectives and policies are
similar to those of any of the Series) and to engage in other activities, so
long as its services hereunder are not impaired thereby.
6. Documents. The Fund has delivered properly certified or authenticated
copies of each of the following documents to the Manager and will deliver to it
all future amendments and supplements thereto, if any:
(a) certified resolution of the Board of Directors of the Fund
authorizing the appointment of the Manager and approving the form of this
Agreement;
(b) the Registration Statement as filed with the SEC and any
amendments thereto; and
(c) exhibits, powers of attorney, certificates and any and all other
documents relating to or filed in connection with the Registration
Statement described above.
7. Records. The Manager agrees to maintain and to preserve for the periods
prescribed under the 1940 Act any such records as are required to be maintained
by the Manager with respect to the Series by the 1940 Act. The Manager further
agrees that all records which it maintains for the Series are the property of
the Fund and it will promptly surrender any of such records upon request.
8. Expenses. During the term of this Agreement, the Manager will pay all
expenses incurred by it in connection with its activities under this Agreement,
except such expenses as are assumed by the Fund under this Agreement and such
expenses as are assumed by a Portfolio Manager under its Portfolio Management
Agreement. The Manager further agrees to pay all fees payable to the Portfolio
Managers, executive salaries and expenses of the Directors and officers of the
Fund who are employees of the Manager or its affiliates, and office rent of the
Fund. The Fund shall be responsible for all of the other expenses of its
operations, including, without limitation, the management fee payable hereunder;
brokerage commissions; interest; legal fees and expenses of attorneys; fees of
auditors, transfer agents and dividend disbursing agents, and custodians; the
<PAGE>
expense of obtaining quotations for calculating each Fund's net asset value;
taxes, if any, and the preparation of the Fund's tax returns; cost of stock
certificates and any other expenses (including clerical expenses) of issue,
sale, repurchase or redemption of shares; expenses of registering and qualifying
shares of the Fund under federal and state laws and regulations (including the
salary of employees of the Manager engaged in the registering and qualifying of
shares of the Fund under federal and state laws and regulations or a pro-rata
portion of the salary of employees to the extent so engaged); expenses of
printing and distributing reports, notices and proxy materials to existing
shareholders; expenses of printing and filing reports and other documents filed
with governmental agencies; expenses of annual and special shareholder meetings;
expenses of printing and distributing prospectuses and statements of additional
information to existing shareholders; fees and expenses of Directors of the Fund
who are not employees of the Manager or any Portfolio Manager, or their
affiliates; membership dues in the Investment Company Institute; insurance
premiums; and extraordinary expenses such as litigation expenses. To the extent
the Manager incurs any costs or performs any services which are an obligation of
the Fund, as set forth herein, the Fund shall promptly reimburse the Manager for
such costs and expenses. To the extent the services for which the Fund is
obligated to pay are performed by the Manager, the Manager shall be entitled to
recover from the Fund only to the extent of its costs for such services.
9. Compensation. For the services provided by the Manager pursuant to this
Agreement, the Fund will pay to the Manager a monthly fee, in arrears, equal to
1/12th of the corresponding percentage of the average daily net assets of each
Series during the month. For purposes of the immediately preceding sentence, the
corresponding percentages are as follows:
Pilgrim MidCap Value fund 1.00%
Pilgrim LargeCap Leaders Fund 1.00%
Pilgrim Asia-Pacific Equity Fund 1.25%
Payment of the fee will be due by the 10th day of the following month. Payment
of the above fees shall be in addition to any amount paid to the Manager for the
salary of its employees engaged in registering and qualifying shares of the Fund
under federal and state law as provided in Section 8. The fee will be
appropriately pro-rated to reflect any portion of a calendar month that this
Agreement is not in effect between us.
10. Liability of the Manager. The Manager may rely on information
reasonably believed by it to be accurate and reliable. Except as may otherwise
be required by the 1940 Act or the rules thereunder, neither the Manager nor its
stockholders, officers, directors, employees, or agents shall be subject to, and
the Fund will indemnify such persons from and against, any liability for, or any
damages, expenses, or losses incurred in connection with, any act or omission
connected with or arising out of any services rendered under this Agreement,
except by reason of willful misfeasance, bad faith, or gross negligence in the
performance of the Manager's duties, or by reason of reckless disregard of the
Manager's obligations and duties under this Agreement. Except as may otherwise
be required by the 1940 Act or the rules thereunder, neither the Manager nor its
stockholders, officers, directors, employees, or agents shall be subject to, and
the Fund will indemnify such persons from and against, any liability for, or any
damages, expenses, or losses incurred in connection with, any act or omission by
a Portfolio Manager or any of the Portfolio Manager's stockholders or partners,
officers, directors, employees, or agents connected with or arising out of any
services rendered under a Portfolio Management Agreement, except by reason of
<PAGE>
willful misfeasance, bad faith, or gross negligence in the performance of the
Manager's duties under this Agreement, or by reason of reckless disregard of the
Manager's obligations and duties under this Agreement.
11. Continuation and Termination. This Agreement shall become effective on
the date first written above, subject to the condition that the Fund's Board of
Directors, including a majority of those Directors who are not interested
persons (as such term is defined in the 1940 Act) of the Manager, and the
shareholders of each Series, shall have approved this Agreement. Unless
terminated as provided herein, the Agreement shall continue in full force and
effect for two (2) years from the effective date of this Agreement, and shall
continue from year to year thereafter with respect to each Series so long as
such continuance is specifically approved at least annually (i) by the vote of a
majority of the Board of Directors of the Fund, or (ii) by vote of a majority of
the outstanding voting shares of the Fund (as defined in the 1940 Act), and
provided continuance is also approved by the vote of a majority of the Board of
Directors of the Fund who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of the Fund or the Manager, cast in person
at a meeting called for the purpose of voting on such approval. This Agreement
may not be amended in any material respect without a majority vote of the
outstanding voting shares (as defined in the 1940 Act).
However, any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 1940 Act) of a Series shall be effective
to continue this Agreement with respect to such Series notwithstanding (i) that
this Agreement has not been approved by the holders of a majority of the
outstanding shares of any other Series or (ii) that this Agreement has not been
approved by the vote of a majority of the outstanding shares of the Fund, unless
such approval shall be required by any other applicable law or otherwise. This
Agreement may be terminated by the Fund at any time, without the payment of any
penalty, by vote of a majority of the entire Board of Directors of the Fund or
by a vote of a majority of the outstanding voting shares of the Fund, or with
respect to a Series, by vote of a majority of the outstanding voting shares of
such Series, on sixty (60) days' written notice to the Manager, or by the
Manager at any time, without the payment of any penalty, on sixty (60) days'
written notice to the Fund. This Agreement will automatically and immediately
terminate in the event of its "assignment" (as described in the 1940 Act).
12. Use of Name. It is understood that the name "Pilgrim America
Investments, Inc." or any derivative thereof (including the name "Pilgrim" and
the phrase "Pilgrim America") or logo associated with that name is the valuable
property of the Manager and its affiliates, and that the Fund and/or the Series
have the right to use such name (or derivative or logo) only so long as this
Agreement shall continue with respect to such Fund and/or Series. Upon
termination of this Agreement, the Fund (or Series) shall forthwith cease to use
such name (or derivative or logo) and, in the case of the Fund, shall promptly
amend its Articles of Incorporation to change its name (if such name is included
therein).
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.
14. Applicable Law.
(a) This Agreement shall be governed by the laws of the State of
Arizona, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or any
rules or order of the SEC thereunder.
<PAGE>
(b) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions
of this Agreement shall be deemed to be severable.
(c) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PILGRIM ADVISORY FUNDS, INC.
By:
---------------------------------
---------------------------------
Title
PILGRIM INVESTMENTS, INC.
By:
---------------------------------
---------------------------------
Title
<PAGE>
APPENDIX B
Form of Investment Advisory Agreement for Pilgrim Bank and Thrift Fund, Inc.
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT is made as of the ___ day of _______, 1999,
by and between PILGRIM BANK AND THRIFT FUND, INC., a Maryland corporation (the
"Fund"), and PILGRIM INVESTMENTS, INC., a Delaware corporation (the "Manager"),
with respect to the following recital of fact.
W I T N E S S E T H:
WHEREAS, the Fund is registered as a open-end, diversified, management
investment company, under the Investment Company Act of 1940, as amended; and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended and is engaged in the business of
supplying investment advice, investment management and administrative services,
as an independent contractor; and
WHEREAS, the Fund desires to retain the Manager to render advice and
services to the Fund pursuant to the terms and provisions of this Agreement, and
the Manager is interested in furnishing said advice and services.
NOW, THEREFORE, in consideration of the covenants and the mutual promises
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
mutually agree as follows:
1. Investment Management. The Manager shall manage the Fund's affairs and
shall supervise all aspects of the Fund's operations, including the investment
and reinvestment of the cash, securities or other properties comprising the
Fund's assets, subject at all times to the policies and control of the Fund's
Board of Directors. The Manager shall give the Fund the benefit of its best
judgment, efforts and facilities in rendering its services as Manager.
2. Duties of the Investment Manager. In carrying out its obligation under
paragraph 1 hereof, the Manager shall:
(a) supervise and manage all aspects of the Fund's operations;
(b) provide the Fund with such executive, administrative and
clerical services as are deemed advisable by the Fund's Board
of Directors;
(c) arrange, but not pay for, the periodic updating and filing of
prospectuses and supplements thereto, proxy material, tax
returns, reports to the Fund's shareholders and reports to and
filings with the Securities and Exchange Commission and state
Blue Sky authorities;
<PAGE>
(d) provide the Fund with, or obtain for it, adequate office space
and all necessary office equipment and service, including
telephone service, heat, utilities, stationery supplies and
similar items for the Fund's principal office;
(e) provide the Board of Directors of the Fund on a regular basis
with financial reports and analyses on the Fund's operations
and the operations of comparable investment companies;
(f) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data,
domestic, foreign and otherwise, whether affecting the economy
generally or the portfolio of the Fund, and whether concerning
the individual issuers whose securities are included in the
Fund's portfolio or the activities in which they engage, or
with respect to securities which the Manager considers
desirable for inclusion in the Fund's portfolio;
(g) determine what issuers and securities shall be represented in
the Fund's portfolio and regularly report them to the Fund's
Board of Directors;
(h) formulate and implement continuing programs for the purchases
and sales of the securities of such issuers and regularly
report thereon to the Fund's Board of Directors; and
(i) take, on behalf of the Fund, all actions which appear
necessary to carry into effect such purchase and sale programs
and supervisory functions as aforesaid, including the placing
of orders for the purchase and sale of portfolio securities,
it being understood that the Fund shall reimburse the Manager
for the costs of such actions upon proper accounting.
3. Broker-Dealer Relationships. The Manager is responsible for decisions to
buy and sell securities for the Fund, broker-dealer selection, and negotiation
of its brokerage commission rates. The Manager's primary consideration in
effecting a security transaction will be execution at the most favorable price.
In selecting a broker-dealer to execute each particular transaction, the
Manager will take the following into consideration: the best net price
available; the reliability, integrity and financial condition of the
broker-dealer; the size of and difficulty in executing the order; the value of
the expected contribution of the broker-dealer to the investment performance of
the Fund on a continuing basis; and other factors such as the broker-dealer's
ability to engage in transactions in shares of issuers which are typically not
listed on an organized stock exchange. Accordingly, the price to the Fund in any
transaction may be less favorable than that available from another broker-dealer
if the difference is reasonably justified by other aspects of the portfolio
execution services offered. Subject to such policies as the Board of Directors
may determine, the Manager shall not be deemed to have acted unlawfully or to
have breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Fund to pay a broker or dealer that provides brokerage
and research services to the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Manager determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Manager's overall responsibilities with respect to the Fund.
<PAGE>
The Manager is further authorized to allocate the orders placed by it on
behalf of the Fund to such brokers and dealers who also provide research or
statistical material, or other services to the Fund or the Manager. Such
allocations shall be in such amounts and proportions as the Manager shall
determine and the Manager will report on said allocations regularly to the Board
of Directors of the Fund indicating the brokers to whom such allocations have
been made and the basis therefor.
4. Control by Board of Directors. Any management or supervisory activities
undertaken by the Manager pursuant to this Agreement, as well as other
activities undertaken by the Manager on behalf of the Fund pursuant thereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund.
5. Compliance with Applicable Requirements. In carrying out is obligations
under this Agreement, the Manager shall at all times conform to:
(a) all applicable provisions of the Investment Company Act of 1940
and any rules and regulations adopted thereunder, as amended; and
(b) the provisions of the Registration Statement of the Fund under
the Securities Act of 1933 and the Investment Company Act of
1940, as amended; and
(c) the provisions of the Articles of Incorporation of the Fund, as
amended; and
(d) the provisions of the By-laws of the Fund, as amended; and
(d) any other applicable provisions of state and Federal law.
6. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Manager as follows:
(a) The Manager shall furnish at its expense and without cost to the
Fund, the services of a President, Secretary and one or more Vice
Presidents of the Fund, to the extent that such additional
officers may be required by the Fund for the proper conduct of
its affairs;
(b) Nothing in Subparagraph (a) hereof shall be construed to require
the Manager to bear the portion allocable to the Fund of the
salary of the Manager's portfolio trader and the compensation
paid to personnel working under his or her direction to the
extent such salary and compensation does not exceed $15,000 per
annum. Notwithstanding the obligation of the Fund to bear the
expense of the items referred to above, the Manager may pay the
salaries, including any applicable employment or payroll taxes
and other salary costs, of the personnel carrying out such
functions and the Fund shall reimburse the Manager therefor upon
proper accounting;
(c) The Manager shall bear the cost of the portion allocable to the
Fund of the salary of the Manager's portfolio trader and the
compensation paid to personnel working under his or her direction
to the extent such salary and compensation exceeds $15,000 per
annum;
(d) The Fund shall pay or cause to be paid all expenses of the stock
transfer or dividend agent or agents appointed by the Fund;
<PAGE>
(e) The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: the charges
and expenses of the registrar, any custodian or depository
appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any accounting agent appointed
by the Fund; broker's commissions chargeable to the Fund in
connection with portfolio securities transactions to which the
Fund is a party; all taxes, including securities issuance and
transfer taxes, and corporate fees payable by the Fund to
Federal, state or other governmental agencies; the cost and
expense of engraving or printing of stock certificates
representing shares of the Fund; all costs and expenses in
connection with the registration and maintenance of registration
of the Fund and its shares with the Securities and Exchange
Commission and various states and other jurisdictions (including
filing fees and legal fees and disbursements of counsel); the
costs and expenses in connection with the listing, and
maintenance of such listing, of the Fund's shares on any
securities exchange; the costs and expenses of preparing
(including typesetting) prospectuses (including supplements
thereto) of the Fund, proxy statements and reports to
shareholders; and of printing and distributing such items to the
Fund's shareholders, all expenses of shareholders' and directors'
meetings; fees and travel expenses of directors or members of any
advisory board or committee; all expenses incident to the payment
of any dividend, distribution, withdrawal or redemption, whether
in shares or in cash; charges and expenses of any outside service
used for pricing of the Fund's shares; charges and expenses of
legal counsel, including counsel to the directors of the Fund who
are not interested persons (as defined in the Investment Company
Act of 1940, as amended) of the Fund, and of independent
accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on
Fund borrowings; postage; insurance premiums on property or
personnel (including officers and directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not
limited to, legal claims and liabilities and litigation costs and
any indemnification related thereto); and all other charges and
costs of the Fund's operation unless otherwise explicitly
provided therein.
7. Delegation of Responsibilities. The Manager may, but should be under no
duty to, perform services on behalf of the Fund which are not required by this
Agreement upon the request of the Fund's Board of Directors. Such services will
be performed on behalf of the Fund and the Manager's charge in rendering such
services may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Manager of any Fund
expense that the Manager is not required to pay or assume under this Agreement
shall not relieve the Manager of any of its obligations to the Fund nor obligate
the Manager to pay or assume any similar Fund expense on any subsequent
occasions.
8. Compensation. For the services to be rendered and the expenses assumed
by the Manager, the Fund shall pay to the Manager monthly compensation of the
sum of the amounts determined by applying the following annual rates to the
Fund's average daily net assets: 1.0% of the first $30 million of the Fund's
average daily net assets, .75% of the Fund's average daily net assets of the
next $95 million of average daily net assets, and .70% of the average daily net
assets in excess of $125 million. Except as hereinafter set forth, compensation
under this Agreement shall be calculated and accrued daily and the amounts of
daily accruals shall be paid monthly. If this Agreement becomes effective
subsequent to the first day of a month or shall terminate before the last day of
a month, compensation for that part of the month this Agreement is in effect
shall be prorated in a manner consistent with the calculation of fees set forth
above. Payment of the Manager's compensation for the preceding month shall be
made as promptly as possible after completion of the computations contemplated
above.
<PAGE>
9. Non-Exclusivity. The services of the Manager to the Fund are not to be
deemed to be exclusive, and the Manager shall be free to render investment
management and corporate administrative or other services to others (including
other investment companies) and to engage in other activities, so long as its
services under this Agreement are not impaired thereby. It is understood and
agreed that officers and directors of the Manager may serve as officers or
directors of the Manager to the extent permitted by law; and that the officers
and directors of the Manager are not prohibited from engaging in any other
business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies.
10. Term and Approval. This Agreement shall become effective on the date
first written above, subject to the condition that the Fund's Board of
Directors, including a majority of those Directors who are not interested
persons (as such term is defined in the 1940 Act) of the Manager, and the
shareholders of the Fund, shall have approved this Agreement. Unless terminated
as provided herein, the Agreement shall continue in full force and effect for
two (2) years from the effective date of this Agreement, and shall continue from
year to year thereafter, provided that such continuance is specifically approved
at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a
majority of the Fund's outstanding voting securities (as defined
in Section 2(a)(42) of the Investment Company Act of 1940, as
amended), and
(b) by the affirmative vote of a majority of the directors who are
not parties to this Agreement or interested persons of a party to
this Agreement (other than as Fund directors), by votes cast in
person at a meeting specifically called for such purpose.
11. Termination. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of the Fund's Board of Directors or by vote of a
majority of the Fund's outstanding securities (as defined in Section 2(a)(42) of
the Investment Company Act of 1940, as amended), or by the Manager, on sixty
(60) days' written notice to the other party. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" having the
meaning defined in Section 2(a)(4) of the Investment Company Act of 1940, as
amended.
12. Liability of the Manager. In the absence of willful misfeasance, bad
faith or gross negligence on the part of the Manager or any of its officers,
directors or employees or reckless disregard by the Manager of its duties under
this Agreement, the Manager shall not be liable to the Fund or to any
shareholder of the Fund for any act or omission in the course, or connected
with, rendering services hereunder or for any losses that may be sustained in
the purchase, holding or sale of any security.
13. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Manager
and that of the Fund for this purpose shall be 40 N. Central Avenue, Suite 1200,
Phoenix, Arizona 85004.
<PAGE>
14. Questions of Interpretation. Any question of interpretation of any term
or provision of this Agreement having a counterpart in or otherwise derived from
a term or provision of the Investment Company Act of 1940, as amended, shall be
resolved by reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Securities and Exchange Commission issued pursuant to said Act. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is revised by
rule, regulation or order of the Securities and Exchange Commissions, such
provisions shall be deemed to incorporate the effect of such rule, regulation or
order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers on the day and year first above written.
PILGRIM BANK AND THRIFT FUND, INC.
By:
------------------------------------
Title:
------------------------------------
PILGRIM INVESTMENTS, INC.
By:
------------------------------------
Title:
------------------------------------
<PAGE>
APPENDIX C
Form of Investment Advisory Agreement for Pilgrim Government Securities
Income Fund, Inc.
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the ___ day of __________, 1999,
by and between PILGRIM GOVERNMENT SECURITIES INCOME FUND, INC., a corporation
organized and existing under the laws of the State of California (hereinafter
called the "Fund") and PILGRIM INVESTMENTS, INC., a corporation organized and
existing under the laws of the State of Delaware (hereinafter called the
"Manager").
W I T N E S S E T H:
WHEREAS, the Fund is an open-end management investment company, registered
as such under the Investment Company Act of 1940; and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, and is engaged in the business of supplying
investment advice, investment management and administrative services, as an
independent contractor; and
WHEREAS, the Fund desires to retain the Manager to render advice and
services to the Fund pursuant to the terms and provisions of this Agreement, and
the Manager is interested in furnishing said advice and services.
NOW, THEREFORE, in consideration of the covenants and the mutual promises
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
mutually agree as follows:
1. The Fund hereby employs the Manager and the Manager hereby accepts such
employment, to render investment advice and investment services with respect to
the assets of the Fund, subject to the supervision and direction of the Fund's
Board of Directors. The Manager shall, except as otherwise provided for herein,
render or make available all administrative services needed for the management
and operation of the Fund, and shall, as part of its duties hereunder, (i)
furnish the Fund with advice and recommendations with respect to the investment
of the Fund's assets and the purchase and sale of its portfolio securities,
including the taking of such other steps a may be necessary to implement such
advice and recommendations, (ii) furnish the Fund with reports, statements and
other data on securities, economic conditions and other pertinent subjects which
the Board of Directors may request, (iii) furnish such office space and
personnel as is needed by the Fund, and (iv) in general superintend and manage
the investments of the Fund, subject to the ultimate supervision and direction
of the Board of Directors.
2. The Manager shall use its best judgment and efforts in rendering the
advice and services to the Fund as contemplated by this Agreement.
3. The Manager shall, for all purposes herein, be deemed to be an
independent contractor, and shall, unless otherwise expressly provided and
authorized, have no authority to act for or represent the Fund in any way, or in
any way be deemed an agent for the Fund. It is expressly understood and agreed
that the services to be rendered by the Manager to the Fund under the provisions
of this Agreement are not to be deemed exclusive, and the Manager shall be free
to render similar or different services to others so long as its ability to
render the services provided for in this Agreement shall not be impaired
thereby.
<PAGE>
4. The Manager agrees to use its best efforts in the furnishing of such
advice and recommendations to the Fund, in the preparation of reports and
information, and in the management of the Fund's assets, all pursuant to this
Agreement, and for this purpose the Manager shall, at its own expense, maintain
such staff and employ or retain such personnel and consult with such other
persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Manager shall be
deemed to include persons employed or retained by the Manager to furnish
statistical, research, and other factual information, advice regarding economic
factors and trends, information with respect to technical and scientific
developments, and such other information, advice and assistance as the Manager
may desire and request.
5. The Fund will from time to time furnish to the Manager detailed
statements of the investments and assets of the Fund and information as to its
investment objectives and needs, and will make available to the Manager such
financial reports, proxy statements, legal and other information relating to its
investments as may be in the possession of the Fund or available to it and such
other information as the Manager may reasonably request.
6. Whenever the Manager has determined that the Fund should tender
securities pursuant to a "tender offer solicitation", the Manager shall
designate an affiliate as the "tendering dealer" so long as it is legally
permitted to act in such capacity under the Federal securities laws and rules
thereunder and the rules of any securities exchange or association of which such
affiliate may be a member. Such affiliated dealer shall not be obligated to make
any additional commitments of capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments necessary to maintain its
corporate existence and membership in the National Association of Securities
Dealers, Inc.) as of the date of this Agreement. This Agreement shall not
obligate the Manager or such affiliate (i) to act pursuant to the foregoing
requirement under any circumstances in which they might reasonably believe that
liability might be imposed upon them as a result of so acting, or (ii) to
institute legal or other proceedings to collect fees which may be considered to
be due from others to it as a result of such a tender, unless the Fund shall
enter into an agreement with such affiliate to reimburse it for all expenses
connected with attempting to collect such fees, including legal fees and
expenses and that portion of the compensation due to their employees which is
attributable to the time involved in attempting to collect such fees.
7. The Manager shall bear and pay the costs of rendering the services to be
performed by it under this Agreement. The Fund shall bear and pay for all other
expenses of its operation, including, but not limited to, expenses incurred in
connection with the issuance, registration and transfer of its shares; fees of
its custodian, transfer and shareholder servicing agent; costs and expenses of
pricing and calculating its daily net asset value and of maintaining its books
of account required by the Investment Company Act of 1940; expenditures in
connection with meetings of the shareholders and directors, except those called
solely to accommodate the Manager; salaries of officers and fees and expenses of
directors or members of any advisory board or committee who are not members of,
affiliated with or interested persons of the Manager; salaries of personnel
involved in placing orders for the execution of the Fund's portfolio
transactions or in maintaining registration of its shares under state securities
laws; insurance premiums on property or personnel of the Fund which inure to its
benefit; the cost of preparing and printing reports, proxy statements and
prospectuses of the Fund or other communications for distribution to its
shareholders; legal, auditing and accounting fees; trade association dues; fees
and expenses of registering and maintaining registration of its shares for sale
under Federal and applicable state securities laws; and all other charges and
<PAGE>
costs of its operation plus any extraordinary and non-recurring expenses, except
as herein otherwise prescribed. To the extent the Manager incurs any costs or
performs any services which are an obligation of the Fund, as set forth herein,
the Fund shall promptly reimburse the Manager for such costs and expenses. To
the extent the services for which the Fund is obligated to pay are performed by
the Manager, the Manager shall be entitled to recover from the Fund only to the
extent of its costs for such services.
8. (a) The Fund agrees to pay to the Manager, and the Manager agrees to
accept, as full compensation for all administrative and investment management
services furnished or provided to the Fund and as a full reimbursement for all
expenses assumed by the Manager, a management fee computed at the following
annual percentage of the average daily net assets of the Fund:
.50% on the first $500 million of net assets; plus
.45% on the net assets from $500 million to $1 billion; plus
.40% on net assets in excess of $1 billion
(b) The management fees shall be accrued daily by the Fund and paid to
the Manager at the end of each calendar month.
(c) To the extent that the gross operating costs and expenses of the
Fund (excluding any interest taxes, brokerage commissions, amortization of
organization expenses, and, with the prior written approval of any state
securities commission requiring same, any extraordinary expenses, such as
litigation) exceed one and one-half percent (1.5%) of the Fund's average
net asset value on the first $40 million of net assets and one percent (1%)
on average net assets in excess of $40 million for any one fiscal year, the
Manager shall reimburse the Fund for the amount of such excess expenses.
(d) The management fee payable by the Fund hereunder shall be reduced
to the extent that an affiliate of the Manager has actually received cash
payments of tender offer solicitation fees less certain costs and expenses
incurred in connection therewith, as referred to in Paragraph 6 herein.
9. The Manager agrees that neither it nor any of its officers or employees
shall take any short position in the capital stock of the Fund. This prohibition
shall not prevent the purchase of such shares by any of the officers and
directors or bona fide employees of the Manager or any trust, pension,
profit-sharing or other benefit plan for such persons or affiliates thereof, at
a price not less than the net asset value thereof at the time of purchase, as
allowed pursuant to rules promulgated under the Investment Company Act of 1940,
as amended
10. Nothing herein contained shall be deemed to require the Fund to take
any action contrary to its Articles of Incorporation or any applicable statute
or regulation, or to relieve or deprive the Board of Directors of the Fund of
its responsibility for and control of the conduct of the affairs of the Fund.
11. (a) In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties hereunder on the part of the
Manager, the Manager shall not be subject to liability to the Fund, or to any
shareholder of the Fund, for any act or omission in the course of, or connected
with, rendering services hereunder or for any losses that may be sustained in
the purchase, holding or sale of any security by the Fund.
<PAGE>
(b) Notwithstanding the foregoing, the Manager agrees to reimburse the
Fund for any and all costs, expenses, and counsel and Directors' fees
reasonably incurred by the Fund in the preparation, printing and
distribution of proxy statements, amendments to its Registration Statement,
the holding of meetings of its shareholders or Directors, the conduct of
factual investigations, any legal or administrative proceedings (including
any applications for exemptions or determinations by the Securities and
Exchange Commission) which the Fund incurs as a result of action or
inaction of the Manager or any of its shareholders where the action or
inaction necessitating such expenditures (i) is directly or indirectly
related to any transactions or proposed transaction in the shares or
control of the Manager or its affiliates (or litigation related to any
pending or proposed future transaction in such shares or control) which
shall have been undertaken without the prior, express approval of the
Fund's Board of Directors; or (ii) is within the sole control of the
Manager or any of its affiliates or any of their officers, directors,
employees or shareholders. The Manager shall not be obligated pursuant to
the provisions of this Subparagraph 11(b), to reimburse the Fund for any
expenditures related to the institution of an administrative proceeding or
civil litigation by the Fund or by a Fund shareholder seeking to recover
all or a portion of the proceeds derived by any shareholder of the Manager
or any of its affiliates from the sale of his shares of the Manager, or
similar matters. So long as this Agreement is in effect, the Manager shall
pay to the Fund the amount due for expenses subject to this Subparagraph
11(b) within thirty (30) days after a bill or statement has been received
by the Fund therefor. This provision shall not be deemed to be a waiver of
any claim the Fund may have or may assert against the Manager or others or
costs, expenses, or damages heretofore incurred by the Fund for costs,
expenses, or damages the Fund may hereafter incur which are not
reimbursable to it hereunder.
(c) No provision of this Agreement shall be construed to protect any
director or officer of the Fund, or of the Manager, from liability in
violation of Section 17(h) and (i) of the Investment Company Act of 1940,
as amended.
12. This Agreement shall become effective on the date first written above,
subject to the condition that the Fund's Board of Directors, including a
majority of those Directors who are not interested persons (as such term is
defined in the 1940 Act) of the Manager, and the shareholders of the Fund, shall
have approved this Agreement. Unless terminated as provided herein, the
Agreement shall continue in full force and effect for two (2) years from the
effective date of this Agreement, and shall continue from year to year
thereafter so long as such continuation is approved at least annually by (i) the
Board of Directors of the Fund or by the vote of a majority of the outstanding
voting securities of the Fund, and (ii) the vote of a majority of the directors
of the Fund who are not parties to this Agreement or interested persons thereof,
cast in person at a meeting called for the purpose of voting on such approval.
13. This Agreement may be terminated at any time, without payment of any
penalty, by the Board of Directors of the Fund or by vote of a majority of the
outstanding voting securities of the Fund, upon sixty (60) days written notice
to the Manager, and by the Manager upon sixty (60) days written notice to the
Fund.
14. This Agreement shall terminate automatically in the event of any
transfer or assignment thereof, as defined in the Investment Company Act of
1940, as amended.
15. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged without the affirmative vote or written consent of the
holders of a majority of the outstanding voting securities of the Fund.
16. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby.
<PAGE>
17. The term "majority of the outstanding voting securities" of the Fund
shall have the meaning as set forth in the Investment Company Act of 1940, as
amended.
18. In consideration of the execution of this Agreement, the Manager hereby
grants to the Fund the right to use the name "Pilgrim" as part of its corporate
name. The Fund agrees that in the event this Agreement is terminated, the Fund
shall immediately take such steps as are necessary to amend its corporate name
to remove the reference to "Pilgrim".
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers, all on the day and
year first above written.
PILGRIM GOVERNMENT SECURITIES
INCOME FUND, INC.
By:
-------------------------------------
Title:
-----------------------------------
PILGRIM INVESTMENTS, INC.
By:
-------------------------------------
Title:
-----------------------------------
<PAGE>
APPENDIX D
Form of Investment Advisory Agreement for Pilgrim High Yield Fund
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the ___ day of _____, 1999, by
and between PILGRIM INVESTMENT FUNDS, INC., a corporation organized and existing
under the laws of the State of Maryland (hereinafter called the "Company") on
behalf of its PILGRIM HIGH YIELD FUND series (the "Fund"), and PILGRIM
INVESTMENTS, INC., a corporation organized and existing under the laws of the
State of Delaware (hereinafter called the "Manager").
W I T N E S S E T H:
WHEREAS, the Fund is a series of the Company, an open-end management
investment company, registered as such under the Investment Company Act of 1940;
and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, and is engaged in the business of supplying
investment advice, investment management and administrative services, as an
independent contractor; and
WHEREAS, the Company on behalf of the Fund desires to retain the Manager to
render advice and services to the Fund pursuant to the terms and provisions of
this Agreement, and the Manager is interested in furnishing said advice and
services.
NOW, THEREFORE, in consideration of the covenants and the mutual promises
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
mutually agree as follows:
1. The Company on behalf of the Fund hereby employs the Manager and the
Manager hereby accepts such employment, to render investment advice and
investment services with respect to the assets of the Fund, subject to the
supervision and direction of the Board of Directors of the Company. The Manager
shall, except as otherwise provided for herein, render or make available all
administrative services needed for the management and operation of the Fund, and
shall, as part of its duties hereunder, (i) furnish the Fund with advice and
recommendations with respect to the investment of the Fund's assets and the
purchase and sale of its portfolio securities, including the taking of such
other steps a may be necessary to implement such advice and recommendations,
(ii) furnish the Fund with reports, statements and other data on securities,
economic conditions and other pertinent subjects which the Board of Directors
may request, (iii) furnish such office space and personnel as is needed by the
Fund, and (iv) in general superintend and manage the investments of the Fund,
subject to the ultimate supervision and direction of the Board of Directors.
2. The Manager shall use its best judgment and efforts in rendering the
advice and services to the Fund as contemplated by this Agreement.
3. The Manager shall, for all purposes herein, be deemed to be an
independent contractor, and shall, unless otherwise expressly provided and
authorized, have no authority to act for or represent the Fund in any way, or in
any way be deemed an agent for the Fund. It is expressly understood and agreed
that the services to be rendered by the Manager to the Fund under the provisions
of this Agreement are not to be deemed exclusive, and the Manager shall be free
<PAGE>
to render similar or different services to others so long as its ability to
render the services provided for in this Agreement shall not be impaired
thereby.
4. The Manager agrees to use its best efforts in the furnishing of such
advice and recommendations to the Fund, in the preparation of reports and
information, and in the management of the Fund's assets, all pursuant to this
Agreement, and for this purpose the Manager shall, at its own expense, maintain
such staff and employ or retain such personnel and consult with such other
persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Manager shall be
deemed to include persons employed or retained by the Manager to furnish
statistical, research, and other factual information, advice regarding economic
factors and trends, information with respect to technical and scientific
developments, and such other information, advice and assistance as the Manager
may desire and request.
5. The Fund will from time to time furnish to the Manager detailed
statements of the investments and assets of the Fund and information as to its
investment objectives and needs, and will make available to the Manager such
financial reports, proxy statements, legal and other information relating to its
investments as may be in the possession of the Fund or available to it and such
other information as the Manager may reasonably request.
6. Whenever the Manager has determined that the Fund should tender
securities pursuant to a "tender offer solicitation", the Manager shall
designate an affiliate as the "tendering dealer" so long as it is legally
permitted to act in such capacity under the Federal securities laws and rules
thereunder and the rules of any securities exchange or association of which such
affiliate may be a member. Such affiliated dealer shall not be obligated to make
any additional commitments of capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments necessary to maintain its
corporate existence and membership in the National Association of Securities
Dealers, Inc.) as of the date of this Agreement. This Agreement shall not
obligate the Manager or such affiliate (i) to act pursuant to the foregoing
requirement under any circumstances in which they might reasonably believe that
liability might be imposed upon them as a result of so acting, or (ii) to
institute legal or other proceedings to collect fees which may be considered to
be due from others to it as a result of such a tender, unless the Fund shall
enter into an agreement with such affiliate to reimburse it for all expenses
connected with attempting to collect such fees, including legal fees and
expenses and that portion of the compensation due to their employees which is
attributable to the time involved in attempting to collect such fees.
7. The Manager shall bear and pay the costs of rendering the services to be
performed by it under this Agreement. The Fund shall bear and pay for all other
expenses of its operation, including, but not limited to, expenses incurred in
connection with the issuance, registration and transfer of its shares; fees of
its custodian, transfer and shareholder servicing agent; costs and expenses of
pricing and calculating its daily net asset value and of maintaining its books
of account required by the Investment Company Act of 1940; expenditures in
connection with meetings of the shareholders and directors, except those called
solely to accommodate the Manager; salaries of officers and fees and expenses of
directors or members of any advisory board or committee who are not members of,
affiliated with or interested persons of the Manager; salaries of personnel
involved in placing orders for the execution of the Fund's portfolio
transactions or in maintaining registration of its shares under state securities
laws; insurance premiums on property or personnel of the Fund which inure to its
benefit; the cost of preparing and printing reports, proxy statements and
prospectuses of the Fund or other communications for distribution to its
<PAGE>
shareholders; legal, auditing and accounting fees; trade association dues; fees
and expenses of registering and maintaining registration of its shares for sale
under Federal and applicable state securities laws; and all other charges and
costs of its operation plus any extraordinary and non-recurring expenses, except
as herein otherwise prescribed. To the extent the Manager incurs any costs or
performs any services which are an obligation of the Fund, as set forth herein,
the Fund shall promptly reimburse the Manager for such costs and expenses. To
the extent the services for which the Fund is obligated to pay are performed by
the Manager, the Manager shall be entitled to recover from the Fund only to the
extent of its costs for such services.
8. (a) The Fund agrees to pay to the Manager, and the Manager agrees to
accept, as full compensation for all administrative and investment management
services furnished or provided to the Fund and as full reimbursement for all
expenses assumed by the Manager, a management fee computed at an annual
percentage rate of .60% of the average daily net assets of the Fund.
(b) The management fees shall be accrued daily by the Fund and paid to
the Manager at the end of each calendar month.
(c) To the extent that the gross operating costs and expenses of the
Fund (excluding any interest taxes, brokerage commissions, and, with the
prior written approval of any state securities commission requiring same,
any extraordinary expenses, such as litigation) exceed the allowable
expense limitations of the state in which shares of the Fund are registered
for sale having the most stringent expense reimbursement provisions, the
Manager shall reimburse the Fund for the amount of such excess.
(d) The management fee payable by the Fund hereunder shall be reduced
to the extent that an affiliate of the Manager has actually received cash
payments of tender offer solicitation fees less certain costs and expenses
incurred in connection therewith, as referred to in Paragraph 6 herein.
9. The Manager agrees that neither it nor any of its officers or employees
shall take any short position in the capital stock of the Fund. This prohibition
shall not prevent the purchase of such shares by any of the officers and
directors or bona fide employees of the Manager or any trust, pension,
profit-sharing or other benefit plan for such persons or affiliates thereof, at
a price not less than the net asset value thereof at the time of purchase, as
allowed pursuant to rules promulgated under the Investment Company Act of 1940,
as amended
10. Nothing herein contained shall be deemed to require the Fund to take
any action contrary to the Articles of Incorporation or By-Laws of the Company,
or any applicable statute or regulation, or to relieve or deprive the Board of
Directors of the Company of its responsibility for and control of the conduct of
the affairs of the Fund.
11. (a) In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties hereunder on the part of the
Manager, the Manager shall not be subject to liability to the Fund, or to any
shareholder of the Fund, for any act or omission in the course of, or connected
with, rendering services hereunder or for any losses that may be sustained in
the purchase, holding or sale of any security by the Fund.
(b) Notwithstanding the foregoing, the Manager agrees to reimburse the
Fund for any and all costs, expenses, and counsel and Directors' fees
reasonably incurred by the Company in the preparation, printing and
distribution of proxy statements, amendments to its Registration Statement,
the holding of meetings of its shareholders or Directors, the conduct of
factual investigations, any legal or administrative proceedings (including
any applications for exemptions or determinations by the Securities and
<PAGE>
Exchange Commission) which the Fund incurs as a result of action or
inaction of the Manager or any of its shareholders where the action or
inaction necessitating such expenditures (i) is directly or indirectly
related to any transactions or proposed transaction in the shares or
control of the Manager or its affiliates (or litigation related to any
pending or proposed future transaction in such shares or control) which
shall have been undertaken without the prior, express approval of the
Company's Board of Directors; or (ii) is within the sole control of the
Manager or any of its affiliates or any of their officers, directors,
employees or shareholders. The Manager shall not be obligated pursuant to
the provisions of this Subparagraph 11(b), to reimburse the Fund for any
expenditures related to the institution of an administrative proceeding or
civil litigation by the Fund or by a Fund shareholder seeking to recover
all or a portion of the proceeds derived by any shareholder of the Manager
or any of its affiliates from the sale of his shares of the Manager, or
similar matters. So long as this Agreement is in effect, the Manager shall
pay to the Fund the amount due for expenses subject to this Subparagraph
11(b) within thirty (30) days after a bill or statement has been received
by the Fund therefor. This provision shall not be deemed to be a waiver of
any claim the Fund may have or may assert against the Manager or others or
costs, expenses, or damages heretofore incurred by the Fund for costs,
expenses, or damages the Fund may hereafter incur which are not
reimbursable to it hereunder.
(c) No provision of this Agreement shall be construed to protect any
director or officer of the Fund, or of the Manager, from liability in
violation of Section 17(h) and (i) of the Investment Company Act of 1940,
as amended.
12. This Agreement shall become effective on the date first written above,
subject to the condition that the Company's Board of Directors, including a
majority of those Directors who are not interested persons (as such term is
defined in the 1940 Act) of the Manager, and the shareholders of the Fund, shall
have approved this Agreement. Unless terminated as provided herein, the
Agreement shall continue in full force and effect for two (2) years from the
effective date of this Agreement, and shall continue from year to year
thereafter so long as such continuation is approved at least annually by (i) the
Board of Directors of the Company or by the vote of a majority of the
outstanding voting securities of the Fund, and (ii) the vote of a majority of
the directors of the Company who are not parties to this Agreement or interested
persons thereof, cast in person at a meeting called for the purpose of voting on
such approval.
13. This Agreement may be terminated at any time, without payment of any
penalty, by the Board of Directors of the Company or by vote of a majority of
the outstanding voting securities of the Company, upon sixty (60) days written
notice to the Manager, and by the Manager upon sixty (60) days written notice to
the Fund.
14. This Agreement shall terminate automatically in the event of any
transfer or assignment thereof, as defined in the Investment Company Act of
1940, as amended.
15. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged without the affirmative vote or written consent of the
holders of a majority of the outstanding voting securities of the Fund.
16. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby.
<PAGE>
17. The term "majority of the outstanding voting securities" of the Fund
shall have the meaning as set forth in the Investment Company Act of 1940, as
amended.
18. In consideration of the execution of this Agreement, the Manager hereby
grants to the Company and the Fund the right to use the name "Pilgrim" as part
of their corporate names. The Company and Fund agree that in the event this
Agreement is terminated, the Company and the Fund shall immediately take such
steps as are necessary to amend their corporate names to remove the reference to
"Pilgrim".
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers, on the day and
year first above written.
PILGRIM INVESTMENT FUNDS, INC.
(on behalf of its Pilgrim High Yield Fund series)
By:
-------------------------------------
Title:
----------------------------------
PILGRIM INVESTMENTS, INC.
By:
-------------------------------------
Title:
----------------------------------
<PAGE>
APPENDIX E
Form of Investment Advisory Agreement for Pilgrim MagnaCap Fund
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the ___ day of __________, 1999,
by and between PILGRIM INVESTMENT FUNDS, INC., a corporation organized and
existing under the laws of the State of Maryland (hereinafter called the
"Company") on behalf of its PILGRIM MAGNACAP FUND series (the "Fund"), and
PILGRIM INVESTMENTS, INC., a corporation organized and existing under the laws
of the State of Delaware (hereinafter called the "Manager").
W I T N E S S E T H:
WHEREAS, the Fund is a series of the Company, an open-end management
investment company, registered as such under the Investment Company Act of 1940;
and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, and is engaged in the business of supplying
investment advice, investment management and administrative services, as an
independent contractor; and
WHEREAS, the Company on behalf of the Fund desires to retain the Manager to
render advice and services to the Fund pursuant to the terms and provisions of
this Agreement, and the Manager is interested in furnishing said advice and
services.
NOW, THEREFORE, in consideration of the covenants and the mutual promises
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
mutually agree as follows:
1. The Company on behalf of the Fund hereby employs the Manager and the
Manager hereby accepts such employment, to render investment advice and
investment services with respect to the assets of the Fund, subject to the
supervision and direction of the Board of Directors of the Company. The Manager
shall, except as otherwise provided for herein, render or make available all
administrative services needed for the management and operation of the Fund, and
shall, as part of its duties hereunder, (i) furnish the Fund with advice and
recommendations with respect to the investment of the Fund's assets and the
purchase and sale of its portfolio securities, including the taking of such
other steps a may be necessary to implement such advice and recommendations,
(ii) furnish the Fund with reports, statements and other data on securities,
economic conditions and other pertinent subjects which the Board of Directors
may request, (iii) furnish such office space and personnel as is needed by the
Fund, and (iv) in general superintend and manage the investments of the Fund,
subject to the ultimate supervision and direction of the Board of Directors.
2. The Manager shall use its best judgment and efforts in rendering the
advice and services to the Fund as contemplated by this Agreement.
3. The Manager shall, for all purposes herein, be deemed to be an
independent contractor, and shall, unless otherwise expressly provided and
authorized, have no authority to act for or represent the Fund in any way, or in
<PAGE>
any way be deemed an agent for the Fund. It is expressly understood and agreed
that the services to be rendered by the Manager to the Fund under the provisions
of this Agreement are not to be deemed exclusive, and the Manager shall be free
to render similar or different services to others so long as its ability to
render the services provided for in this Agreement shall not be impaired
thereby.
4. The Manager agrees to use its best efforts in the furnishing of such
advice and recommendations to the Fund, in the preparation of reports and
information, and in the management of the Fund's assets, all pursuant to this
Agreement, and for this purpose the Manager shall, at its own expense, maintain
such staff and employ or retain such personnel and consult with such other
persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Manager shall be
deemed to include persons employed or retained by the Manager to furnish
statistical, research, and other factual information, advice regarding economic
factors and trends, information with respect to technical and scientific
developments, and such other information, advice and assistance as the Manager
may desire and request.
5. The Fund will from time to time furnish to the Manager detailed
statements of the investments and assets of the Fund and information as to its
investment objectives and needs, and will make available to the Manager such
financial reports, proxy statements, legal and other information relating to its
investments as may be in the possession of the Fund or available to it and such
other information as the Manager may reasonably request.
6. Whenever the Manager has determined that the Fund should tender
securities pursuant to a "tender offer solicitation", the Manager shall
designate an affiliate as the "tendering dealer" so long as it is legally
permitted to act in such capacity under the Federal securities laws and rules
thereunder and the rules of any securities exchange or association of which such
affiliate may be a member. Such affiliated dealer shall not be obligated to make
any additional commitments of capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments necessary to maintain its
corporate existence and membership in the National Association of Securities
Dealers, Inc.) as of the date of this Agreement. This Agreement shall not
obligate the Manager or such affiliate (i) to act pursuant to the foregoing
requirement under any circumstances in which they might reasonably believe that
liability might be imposed upon them as a result of so acting, or (ii) to
institute legal or other proceedings to collect fees which may be considered to
be due from others to it as a result of such a tender, unless the Fund shall
enter into an agreement with such affiliate to reimburse it for all expenses
connected with attempting to collect such fees, including legal fees and
expenses and that portion of the compensation due to their employees which is
attributable to the time involved in attempting to collect such fees.
7. The Manager shall bear and pay the costs of rendering the services to be
performed by it under this Agreement. The Fund shall bear and pay for all other
expenses of its operation, including, but not limited to, expenses incurred in
connection with the issuance, registration and transfer of its shares; fees of
its custodian, transfer and shareholder servicing agent; costs and expenses of
pricing and calculating its daily net asset value and of maintaining its books
of account required by the Investment Company Act of 1940; expenditures in
connection with meetings of the shareholders and directors, except those called
solely to accommodate the Manager; salaries of officers and fees and expenses of
directors or members of any advisory board or committee who are not members of,
affiliated with or interested persons of the Manager; salaries of personnel
involved in placing orders for the execution of the Fund's portfolio
<PAGE>
transactions or in maintaining registration of its shares under state securities
laws; insurance premiums on property or personnel of the Fund which inure to its
benefit; the cost of preparing and printing reports, proxy statements and
prospectuses of the Fund or other communications for distribution to its
shareholders; legal, auditing and accounting fees; trade association dues; fees
and expenses of registering and maintaining registration of its shares for sale
under Federal and applicable state securities laws; and all other charges and
costs of its operation plus any extraordinary and non-recurring expenses, except
as herein otherwise prescribed. To the extent the Manager incurs any costs or
performs any services which are an obligation of the Fund, as set forth herein,
the Fund shall promptly reimburse the Manager for such costs and expenses. To
the extent the services for which the Fund is obligated to pay are performed by
the Manager, the Manager shall be entitled to recover from the Fund only to the
extent of its costs for such services.
8. (a) The Fund agrees to pay to the Manager, and the Manager agrees to
accept, as full compensation for all administrative and investment management
services furnished or provided to the Fund and as full reimbursement for all
expenses assumed by the Manager, a management fee computed at the following
annual percentage of the average daily net assets of the Fund:
1.00% on the first $30 million of net assets; plus
.75% on the net assets from $30 million to $250 million; plus
.625% on net assets from $250 million to $500 million; plus
.50% on net assets in excess of $500 million
(b) The management fees shall be accrued daily by the Fund and paid to
the Manager at the end of each calendar month.
(c) To the extent that the gross operating costs and expenses of the
Fund (excluding any interest taxes, brokerage commissions, and, with the
prior written approval of any state securities commission requiring same,
any extraordinary expenses, such as litigation) exceed the allowable
expense limitations of the state in which shares of the Fund are registered
for sale having the most stringent expense reimbursement provisions, the
Manager shall reimburse the Fund for the amount of such excess.
(d) The management fee payable by the Fund hereunder shall be reduced
to the extent that an affiliate of the Manager has actually received cash
payments of tender offer solicitation fees less certain costs and expenses
incurred in connection therewith, as referred to in Paragraph 6 herein.
9. The Manager agrees that neither it nor any of its officers or employees
shall take any short position in the capital stock of the Fund. This prohibition
shall not prevent the purchase of such shares by any of the officers and
directors or bona fide employees of the Manager or any trust, pension,
profit-sharing or other benefit plan for such persons or affiliates thereof, at
a price not less than the net asset value thereof at the time of purchase, as
allowed pursuant to rules promulgated under the Investment Company Act of 1940,
as amended
10. Nothing herein contained shall be deemed to require the Fund to take
any action contrary to the Articles of Incorporation or By-Laws of the Company,
or any applicable statute or regulation, or to relieve or deprive the Board of
Directors of the Company of its responsibility for and control of the conduct of
the affairs of the Fund.
11. (a) In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties hereunder on the part of the
Manager, the Manager shall not be subject to liability to the Fund, or to any
shareholder of the Fund, for any act or omission in the course of, or connected
with, rendering services hereunder or for any losses that may be sustained in
the purchase, holding or sale of any security by the Fund.
<PAGE>
(b) Notwithstanding the foregoing, the Manager agrees to reimburse the
Fund for any and all costs, expenses, and counsel and Directors' fees
reasonably incurred by the Company in the preparation, printing and
distribution of proxy statements, amendments to its Registration Statement,
the holding of meetings of its shareholders or Directors, the conduct of
factual investigations, any legal or administrative proceedings (including
any applications for exemptions or determinations by the Securities and
Exchange Commission) which the Fund incurs as a result of action or
inaction of the Manager or any of its shareholders where the action or
inaction necessitating such expenditures (i) is directly or indirectly
related to any transactions or proposed transaction in the shares or
control of the Manager or its affiliates (or litigation related to any
pending or proposed future transaction in such shares or control) which
shall have been undertaken without the prior, express approval of the
Company's Board of Directors; or (ii) is within the sole control of the
Manager or any of its affiliates or any of their officers, directors,
employees or shareholders. The Manager shall not be obligated pursuant to
the provisions of this Subparagraph 11(b), to reimburse the Fund for any
expenditures related to the institution of an administrative proceeding or
civil litigation by the Fund or by a Fund shareholder seeking to recover
all or a portion of the proceeds derived by any shareholder of the Manager
or any of its affiliates from the sale of his shares of the Manager, or
similar matters. So long as this Agreement is in effect, the Manager shall
pay to the Fund the amount due for expenses subject to this Subparagraph
11(b) within thirty (30) days after a bill or statement has been received
by the Fund therefor. This provision shall not be deemed to be a waiver of
any claim the Fund may have or may assert against the Manager or others or
costs, expenses, or damages heretofore incurred by the Fund for costs,
expenses, or damages the Fund may hereafter incur which are not
reimbursable to it hereunder.
(c) No provision of this Agreement shall be construed to protect any
director or officer of the Fund, or of the Manager, from liability in
violation of Section 17(h) and (i) of the Investment Company Act of 1940,
as amended.
12. This Agreement shall become effective on the date first written above,
subject to the condition that the Company's Board of Directors, including a
majority of those Directors who are not interested persons (as such term is
defined in the 1940 Act) of the Manager, and the shareholders of the Fund, shall
have approved this Agreement. Unless terminated as provided herein, the
Agreement shall continue in full force and effect for two (2) years from the
effective date of this Agreement, and shall continue from year to year
thereafter so long as such continuation is approved at least annually by (i) the
Board of Directors of the Company or by the vote of a majority of the
outstanding voting securities of the Fund, and (ii) the vote of a majority of
the directors of the Company who are not parties to this Agreement or interested
persons thereof, cast in person at a meeting called for the purpose of voting on
such approval.
13. This Agreement may be terminated at any time, without payment of any
penalty, by the Board of Directors of the Company or by vote of a majority of
the outstanding voting securities of the Company, upon sixty (60) days written
notice to the Manager, and by the Manager upon sixty (60) days written notice to
the Fund.
14. This Agreement shall terminate automatically in the event of any
transfer or assignment thereof, as defined in the Investment Company Act of
1940, as amended.
15. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged without the affirmative vote or written consent of the
holders of a majority of the outstanding voting securities of the Fund.
<PAGE>
16. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby.
17. The term "majority of the outstanding voting securities" of the Fund
shall have the meaning as set forth in the Investment Company Act of 1940, as
amended.
18. In consideration of the execution of this Agreement, the Manager hereby
grants to the Company and the Fund the right to use the name "Pilgrim" as part
of their corporate names. The Company and Fund agree that in the event this
Agreement is terminated, the Company and the Fund shall immediately take such
steps as are necessary to amend their corporate names to remove the reference to
"Pilgrim".
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers, on the day and
year first above written.
PILGRIM INVESTMENT FUNDS, INC.
(on behalf of its Pilgrim MagnaCap Fund series)
By:
------------------------------------
Title:
----------------------------------
PILGRIM INVESTMENTS, INC.
By:
------------------------------------
Title:
----------------------------------
<PAGE>
APPENDIX F
Form of Investment Advisory Agreement for Pilgrim Mutual Funds
(Balanced, Convertible, Emerging Countries, High Yield II, International Core
Growth, International SmallCap Growth, LargeCap Growth, MidCap Growth, Money
Market, SmallCap Growth, Strategic Income and Worldwide Growth Funds)
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this ____ day of ____, 1999 between Pilgrim Mutual Funds
(the "Fund"), a Delaware business trust and Pilgrim Investments, Inc. (the
"Manager"), a Delaware corporation (the "Agreement").
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Fund is authorized to issue shares of beneficial interest in
separate series with each such series representing interests in a separate
portfolio of securities and other assets;
WHEREAS, the Fund may offer shares of additional series in the future, and
currently intends to offer shares of additional series in the future;
WHEREAS, the Fund desires to avail itself of the services of the Manager
for the provision of advisory and management services for the Fund; and
WHEREAS, the Manager is willing to render such services to the Fund;
NOW, THEREFORE, in consideration of the premises, the promises and mutual
covenants herein contained, it is agreed between the parties as follows:
1. Appointment. The Fund hereby appoints the Manager, subject to the
direction of the Board of Trustees, for the period and on the terms set forth in
this Agreement, to provide advisory, management, and other services, as
described herein, with respect to each series of the Fund (individually and
collectively referred to herein as "Series"). The Manager accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided.
In the event the Fund establishes and designates additional series with
respect to which it desires to retain the Manager to render advisory services
hereunder, it shall notify the Manager in writing. If the Manager is willing to
render such services, it shall notify the Fund in writing, whereupon such
additional series shall become a Series hereunder.
2. Services of the Manager. The Manager represents and warrants that it is
registered as an investment adviser under the Investment Advisers Act of 1940
and will maintain such registration for so long as required by applicable law.
Subject to the general supervision of the Board of Trustees of the Fund, the
Manager shall provide the following advisory, management, and other services
with respect to the Series:
(a) Provide general, overall advice and guidance with respect to the
Series and provide advice and guidance to the Fund's Trustees, and oversee
the management of the investments of the Series and the composition of each
Series' portfolio of securities and investments, including cash, and the
purchase, retention and disposition thereof, in accordance with each
<PAGE>
Series' investment objective or objectives and policies as stated in the
Fund's current registration statement, which management may be provided by
others selected by the Manager and approved by the Board of Trustees as
provided below or directly by the Manager as provided in Section 3 of this
Agreement;
(b) In the event that the Manager wishes to select others to render
investment management services, the Manager shall analyze, select and
recommend for consideration and approval by the Fund's Board of Trustees
investment advisory firms (however organized) to provide investment advice
to one or more of the Series, and, at the expense of the Manager, engage
(which engagement may also be by the Fund) such investment advisory firms
to render investment advice and manage the investments of such Series and
the composition of each such Series' portfolio of securities and
investments, including cash, and the purchase, retention and disposition
thereof, in accordance with the Series' investment objective or objectives
and policies as stated in the Fund's current registration statement (any
such firms approved by the Board of Trustees and engaged by the Fund and/or
the Manager are referred to herein as "Portfolio Managers");
(c) Periodically monitor and evaluate the performance of the Portfolio
Managers with respect to the investment objectives and policies of the
Series;
(d) Monitor the Portfolio Managers for compliance with the investment
objective or objectives, policies and restrictions of each Series, the 1940
Act, Subchapter M of the Internal Revenue Code, and if applicable,
regulations under such provisions, and other applicable law;
(e) If appropriate, analyze and recommend for consideration by the
Fund's Board of Trustees termination of a contract with a Portfolio Manager
under which the Portfolio Manager provides investment advisory services to
one or more of the Series;
(f) Supervise Portfolio Managers with respect to the services that
such Portfolio Managers provide under respective portfolio management
agreements ("Portfolio Management Agreements");
(g) Render to the Board of Trustees of the Fund such periodic and
special reports as the Board may reasonably request; and
(h) Make available its officers and employees to the Board of Trustees
and officers of the Fund for consultation and discussions regarding the
administration and management of the Series and services provided to the
Fund under this Agreement.
3. Investment Management Authority. In the event the Manager wishes to
render investment management services directly to a Series, then with respect to
any such Series, the Manager, subject to the supervision of the Fund's Board of
Trustees, will provide a continuous investment program for the Series' portfolio
and determine the composition of the assets of the Series' portfolio, including
determination of the purchase, retention, or sale of the securities, cash, and
other investments contained in the portfolio. The Manager will provide
investment research and conduct a continuous program of evaluation, investment,
sales, and reinvestment of the Series' assets by determining the securities and
other investments that shall be purchased, entered into, sold, closed, or
exchanged for the Series, when these transactions should be executed, and what
portion of the assets of the Series should be held in the various securities and
<PAGE>
other investments in which it may invest, and the Manager is hereby authorized
to execute and perform such services on behalf of the Series. To the extent
permitted by the investment policies of the Series, the Manager shall make
decisions for the Series as to foreign currency matters and make determinations
as to, and execute and perform, foreign currency exchange contracts on behalf of
the Series. The Manager will provide the services under this Agreement in
accordance with the Series' investment objective or objectives, policies, and
restrictions as stated in the Fund's Registration Statement filed with the
Securities and Exchange Commission (the "SEC"), as amended. Furthermore:
(a) The Manager will manage the Series so that each will qualify as a
regulated investment company under Subchapter M of the Internal Revenue
Code. In managing the Series in accordance with these requirements, the
Manager shall be entitled to receive and act upon advice of counsel to the
Fund or counsel to the Manager.
(b) The Manager will conform with the 1940 Act and all rules and
regulations thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the Fund's Board of
Trustees, and the provisions of the Registration Statement of the Fund
under the Securities Act of 1933 and the 1940 Act, as supplemented or
amended.
(c) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Series as well as any other
investment advisory clients, the Manager may, to the extent permitted by
applicable laws and regulations, but shall not be obligated to, aggregate
the securities to be so sold or purchased with those of its other clients
where such aggregation is not inconsistent with the policies set forth in
the Registration Statement. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction,
will be made by the Manager in a manner that is fair and equitable in the
judgment of the Manager in the exercise of its fiduciary obligations to the
Fund and to such other clients.
(d) In connection with the purchase and sale of securities of the
Series, the Manager will arrange for the transmission to the custodian for
the Fund on a daily basis, of such confirmation, trade tickets, and other
documents and information, including, but not limited to, Cusip, Cedel, or
other numbers that identify securities to be purchased or sold on behalf of
the Series, as may be reasonably necessary to enable the custodian to
perform its administrative and recordkeeping responsibilities with respect
to the Series. With respect to portfolio securities to be purchased or sold
through the Depository Trust Company, the Manager will arrange for the
prompt transmission of the confirmation of such trades to the Fund's
custodian.
(e) The Manager will assist the custodian or portfolio accounting
agent for the Fund in determining, consistent with the procedures and
policies stated in the Registration Statement for the Fund, the value of
any portfolio securities or other assets of the Series for which the
custodian or portfolio accounting agent seeks assistance or review from the
Manager.
(f) The Manager will make available to the Fund, promptly upon
request, any of the Series' investment records and ledgers as are necessary
to assist the Fund to comply with requirements of the 1940 Act, as well as
other applicable laws. The Manager will furnish to regulatory authorities
having the requisite authority any information or reports in connection
with its services which may be requested in order to ascertain whether the
operations of the Fund are being conducted in a manner consistent with
applicable laws and regulations.
(g) The Manager will regularly report to the Fund's Board of Trustees
on the investment program for the Series and the issuers and securities
represented in the Series' portfolio, and will furnish the Fund's Board of
Trustees with respect to the Series such periodic and special reports as
the Trustees may reasonably request.
(h) In connection with its responsibilities under this Section 3, the
Manager is responsible for decisions to buy and sell securities and other
investments for the Series' portfolio, broker-dealer selection, and
<PAGE>
negotiation of brokerage commission rates. The Manager's primary
consideration in effecting a security transaction will be to obtain the
best execution for the Series, taking into account the factors specified in
the Prospectus and/or Statement of Additional Information for the Fund,
which include price (including the applicable brokerage commission or
dollar spread), the size of the order, the nature of the market for the
security, the timing of the transaction, the reputation, experience and
financial stability of the broker-dealer involved, the quality of the
service, the difficulty of execution, execution capabilities and
operational facilities of the firms involved, and the firm's risk in
positioning a block of securities. Accordingly, the price to the Series in
any transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified, in the judgment of
the Manager in the exercise of its fiduciary obligations to the Fund, by
other aspects of the portfolio execution services offered. Subject to such
policies as the Board of Trustees may determine and consistent with Section
28(e) of the Securities Exchange Act of 1934, as amended, the Manager shall
not be deemed to have acted unlawfully or to have breached any duty created
by this Agreement or otherwise solely by reason of its having caused the
Series to pay a broker-dealer for effecting a portfolio investment
transaction in excess of the amount of commission another broker-dealer
would have charged for effecting that transaction, if the Manager
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by
such broker-dealer, viewed in terms of either that particular transaction
or the Manager's overall responsibilities with respect to the Series and to
its other clients as to which it exercises investment discretion. To the
extent consistent with these standards and in accordance with Section 11(a)
of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, the
Manager is further authorized to allocate the orders placed by it on behalf
of the Series to the Manager if it is registered as a broker-dealer with
the SEC, to an affiliated broker-dealer, or to such brokers and dealers who
also provide research or statistical material or other services to the
Series, the Manager or an affiliate of the Manager. Such allocation shall
be in such amounts and proportions as the Manager shall determine
consistent with the above standards, and the Manager will report on said
allocation regularly to the Board of Trustees of the Fund indicating the
broker-dealers to which such allocations have been made and the basis
therefor.
4. Conformity with Applicable Law. The Manager, in the performance of its
duties and obligations under this Agreement, shall act in conformity with the
Registration Statement of the Fund and with the instructions and directions of
the Board of Trustees of the Fund and will conform to, and comply with, the
requirements of the 1940 Act and all other applicable federal and state laws and
regulations.
5. Exclusivity. The services of the Manager to the Fund under this
Agreement are not to be deemed exclusive, and the Manager, or any affiliate
thereof, shall be free to render similar services to other investment companies
and other clients (whether or not their investment objectives and policies are
similar to those of any of the Series) and to engage in other activities, so
long as its services hereunder are not impaired thereby.
6. Documents. The Fund has delivered properly certified or authenticated
copies of each of the following documents to the Manager and will deliver to it
all future amendments and supplements thereto, if any:
(a) certified resolution of the Board of Trustees of the Fund
authorizing the appointment of the Manager and approving the form of this
Agreement;
(b) the Registration Statement as filed with the SEC and any
amendments thereto; and
(c) exhibits, powers of attorney, certificates and any and all other
documents relating to or filed in connection with the Registration
Statement described above.
<PAGE>
7. Records. The Manager agrees to maintain and to preserve for the periods
prescribed under the 1940 Act any such records as are required to be maintained
by the Manager with respect to the Series by the 1940 Act. The Manager further
agrees that all records which it maintains for each Series are the property of
the Fund and it will promptly surrender any of such records upon request.
8. Expenses. During the term of this Agreement, the Manager will pay all
expenses incurred by it in connection with its activities under this Agreement,
except such expenses as are assumed by the Fund under this Agreement and such
expenses as are assumed by a Portfolio Manager under its Portfolio Management
Agreement. The Manager further agrees to pay all fees payable to the Portfolio
Managers, executive salaries and expenses of the Trustees of the Fund who are
employees of the Manager or its affiliates, and office rent of the Fund. The
Fund shall be responsible for all of the other expenses of its operations,
including, without limitation, the management fee payable hereunder; brokerage
commissions; interest; legal fees and expenses of attorneys; fees of auditors,
transfer agents and dividend disbursing agents, custodians and shareholder
servicing agents; the expense of obtaining quotations for calculating each
Fund's net asset value; taxes, if any, and the preparation of the Fund's tax
returns; cost of stock certificates and any other expenses (including clerical
expenses) of issue, sale, repurchase or redemption of shares; expenses of
registering and qualifying shares of the Fund under federal and state laws and
regulations (including the salary of employees of the Manager engaged in the
registering and qualifying of shares of the Fund under federal and state laws
and regulations or a pro-rata portion of the salary of employees to the extent
so engaged); salaries of personnel involved in placing orders for the execution
of the Fund's portfolio transactions; expenses of printing and distributing
reports, notices and proxy materials to existing shareholders; expenses of
printing and filing reports and other documents filed with governmental
agencies; expenses in connection with shareholder and trustee meetings; expenses
of printing and distributing prospectuses and statements of additional
information to existing shareholders; fees and expenses of Trustees of the Fund
who are not employees of the Manager or any Portfolio Manager, or their
affiliates; trade association dues; insurance premiums; extraordinary expenses
such as litigation expenses. To the extent the Manager incurs any costs or
performs any services which are an obligation of the Fund, as set forth herein,
the Fund shall promptly reimburse the Manager for such costs and expenses. To
the extent the services for which the Fund is obligated to pay are performed by
the Manager, the Manager shall be entitled to recover from the Fund only to the
extent of its costs for such services.
9. Compensation. For the services provided by the Manager to each Series
pursuant to this Agreement, the Fund will pay to the Manager an annual fee equal
to the amount specified for such Series in Schedule A hereto, payable monthly in
arrears. Payment of the above fees shall be in addition to any amount paid to
the Manager for the salary of its employees for performing services which are an
obligation of the Fund as provided in Section 8. The fee will be appropriately
pro-rated to reflect any portion of a calendar month that this Agreement is not
in effect between us.
10. Liability of the Manager. The Manager may rely on information
reasonably believed by it to be accurate and reliable. Except as may otherwise
be required by the 1940 Act or the rules thereunder, neither the Manager nor its
stockholders, officers, directors, employees, or agents shall be subject to, and
the Fund will indemnify such persons from and against, any liability for, or any
damages, expenses, or losses incurred in connection with, any act or omission
connected with or arising out of any services rendered under this Agreement,
except by reason of willful misfeasance, bad faith, or gross negligence in the
performance of the Manager's duties, or by reason of reckless disregard of the
Manager's obligations and duties under this Agreement. Except as may otherwise
be required by the 1940 Act or the rules thereunder, neither the Manager nor its
stockholders, officers, directors, employees, or agents shall be subject to, and
the Fund will indemnify such persons from and against, any liability for, or any
damages, expenses, or losses incurred in connection with, any act or omission by
a Portfolio Manager or any of the Portfolio Manager's stockholders or partners,
<PAGE>
officers, directors, employees, or agents connected with or arising out of any
services rendered under a Portfolio Management Agreement, except by reason of
willful misfeasance, bad faith, or gross negligence in the performance of the
Manager's duties under this Agreement, or by reason of reckless disregard of the
Manager's obligations and duties under this Agreement. No trustee, officer,
employee or agent of the Fund shall be subject to any personal liability
whatsoever, in his or her official capacity, to any person, including the
Portfolio Manager, other than to the Fund or its shareholders, in connection
with Fund property or the affairs of the Fund, save only that arising from his
or her bad faith, willful misfeasance, gross negligence or reckless disregard of
his or her duty to such person; and all such persons shall look solely to the
Fund property for satisfaction of claims of any nature against a trustee,
officer, employee or agent of the Fund arising in connection with the affairs of
the Fund. Moreover, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a Series shall be
enforceable against the assets and property of that Series only, and not against
the assets or property of any other series of the Fund.
11. Continuation and Termination. This Agreement shall become effective on
the date first written above, subject to the condition that the Fund's Board of
Trustees, including a majority of those Trustees who are not interested persons
(as such term is defined in the 1940 Act) of the Manager, and the shareholders
of each Series, shall have approved this Agreement. Unless terminated as
provided herein, the Agreement shall continue in full force and effect for two
(2) years from the effective date of this Agreement, and shall continue from
year to year thereafter with respect to each Series so long as such continuance
is specifically approved at least annually (i) by the vote of a majority of the
Board of Trustees of the Fund, or (ii) by vote of a majority of the outstanding
voting shares of the Series (as defined in the 1940 Act), and provided
continuance is also approved by the vote of a majority of the Board of Trustees
of the Fund who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval. This Agreement may not be
amended in any material respect without a majority vote of the outstanding
voting shares (as defined in the 1940 Act).
However, any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 1940 Act) of a Series shall be effective
to continue this Agreement with respect to such Series notwithstanding (i) that
this Agreement has not been approved by the holders of a majority of the
outstanding shares of any other Series or (ii) that this Agreement has not been
approved by the vote of a majority of the outstanding shares of the Fund, unless
such approval shall be required by any other applicable law or otherwise. This
Agreement may be terminated by the Fund at any time, without the payment of any
penalty, by vote of a majority of the Board of Trustees of the Fund or by a vote
of a majority of the outstanding voting shares of the Fund, or with respect to a
Series, by vote of a majority of the outstanding voting shares of such Series,
on sixty (60) days' written notice to the Manager, or by the Manager at any
time, without the payment of any penalty, on sixty (60) days' written notice to
the Fund. This Agreement will automatically and immediately terminate in the
event of its "assignment" (as described in the 1940 Act).
12. Use of Name. It is understood that the name "Pilgrim Investments, Inc."
or any derivative thereof (including the name "Pilgrim") or logo associated with
that name is the valuable property of the Manager and its affiliates, and that
the Fund and/or the Series have the right to use such name (or derivative or
logo) only so long as this Agreement shall continue with respect to such Fund
and/or Series. Upon termination of this Agreement, the Fund (or Series) shall
forthwith cease to use such name (or derivative or logo) and, in the case of the
Fund, shall promptly amend its Declaration of Trust to change its name (if such
name is included therein).
<PAGE>
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.
14. Applicable Law.
(a) This Agreement shall be governed by the laws of the State of
Arizona, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or any
rules or order of the SEC thereunder.
(b) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions
of this Agreement shall be deemed to be severable.
(c) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PILGRIM MUTUAL FUNDS
By:
--------------------------------------
Title:
----------------------------------
PILGRIM INVESTMENTS, INC.
By:
--------------------------------------
Title:
----------------------------------
<PAGE>
Schedule A
<TABLE>
<CAPTION>
Series Annual Investment Management Fee
- ------ ----------------------------------
<S> <C>
Pilgrim SmallCap Growth Fund 1.00% of the Series' average net assets
Pilgrim MidCap Growth Fund 0.75% of the first $500 million of the Series'
average net assets, 0.675% of the next $500 million
of average net assets, and 0.65%of the average net
assets in excess of $1 billion
Pilgrim LargeCap Growth Fund 0.75% of the first $500 million of the Series'
average net assets, 0.675% of the next $500 million
of average net assets, and 0.65% of the average net
assets in excess of $1 billion
Pilgrim Convertible Fund 0.75% of the first $500 million of the Series'
average net assets, 0.675% of the next $500 million
of average net assets, and 0.65% of the average net
assets in excess of $1 billion
Pilgrim Balanced Fund 0.75% of the first $500 million of the Series'
average net assets, 0.675% of the next $500 million
of average net assets, and 0.65% of the average
net assets in excess of $1 billion
Pilgrim Strategic Income Fund 0.45% of the first $500 million of the Series'
average net assets, 0.40% of the next $250 million
of average net assets, average net assets
in excess of $750 million
Pilgrim Emerging Countries Fund 1.25% of the Series' average net assets
Pilgrim Worldwide Growth Fund 1.00% of the first $500 million of the Series' average
net assets, 0.90% of the next $500 million of average
net assets, and 0.85% of the average net assets in
excess of $1 billion
Pilgrim International SmallCap Growth Fund 1.00% of the first $500 million of the Series' average
net assets, 0.90% of the next $500 million of average
net assets, and 0.85% of the average net assets in
excess of $1 billion
Pilgrim International Core Growth Fund 1.00% of the first $500 million of the Series' average
net assets, 0.90% of the next $500 million of average
net assets, and 0.85% of the average net assets in
excess of $1 billion
Pilgrim High Yield Fund II 0.60% of the Series' average net assets
Pilgrim Money Market Fund 0.50% of the Series' average net assets, provided,
however, that to the extent the Pilgrim Money
Market Fund invests substantially all of its
assets in another investment company which pays
investment advisory fees, the investment
advisory fees shall be 0.15% of average
net assets.
</TABLE>
<PAGE>
APPENDIX G
Form of Investment Advisory Agreement for Pilgrim Prime Rate Trust
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the ___ day of ________,
1999, by and between PILGRIM PRIME RATE TRUST, a Massachusetts Business Trust
(hereinafter called the "Trust"), and PILGRIM INVESTMENTS, INC., a corporation
organized and existing under the laws of the State of Delaware (hereinafter
called the "Manager").
W I T N E S S E T H:
WHEREAS, the Trust is a closed-end management investment company,
registered as such under the Investment Company Act of 1940; and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, and is engaged in the business of supplying
investment advice and investment management services, as an independent
contractor; and
WHEREAS, the Trust desires to retain the Manager to render investment
advice and investment management services to the Trust pursuant to the terms and
provisions of this Agreement, and the Manager is interested in furnishing said
advice and services.
NOW, THEREFORE, in consideration of the covenants and the mutual
promises hereinafter set forth, the parties hereto, intending to be legally
bound hereby, mutually agree as follows:
1. The Trust hereby employs the Manager and the Manager hereby accepts such
employment, to render investment advice and investment management services with
respect to the assets of the Trust, subject to the supervision and direction of
the Trust's Board of Trustees. The Manager shall, as part of its duties
hereunder (i) furnish the Trust with advice and recommendations with respect to
the investment of the Trust's assets and the purchase and sale of its portfolio
securities, including the taking of such other steps as may be necessary to
implement such advice and recommendations, (ii) furnish the Trust with reports,
statements and other data on securities, economic conditions and other pertinent
subjects which the Trust's Board of Trustees may request, (iii) permit its
officers and employees to serve without compensation as Trustees of the Trust if
elected to such positions and (iv) in general superintend and manage the
investment of the Trust, subject to the ultimate supervision and direction to
the Trust's Board of Trustees.
2. The Manager shall use its best judgment and efforts in rendering the
advice and services to the Trust as contemplated by this Agreement.
3. The Manager shall, for all purposes herein, be deemed to be an
independent contractor, and shall, unless otherwise expressly provided and
authorized, have no authority to act for or represent the Trust in any way, or
in any way be deemed an agent for the Trust. It is expressly understood and
agreed that the services to be rendered by the Manager to the Trust under the
provisions of this Agreement are not to be deemed exclusive, and the Manager
shall be free to render similar or different services to others so long as its
ability to render the services provided for in this Agreement shall not be
impaired thereby.
<PAGE>
4. The Manager agrees to use its best efforts in the furnishing of such
advice and recommendations to the Trust, in the preparation of reports and
information, and in the management of the Trust's assets, all pursuant to this
Agreement, and for this purpose the Manager shall, at its own expense, maintain
such staff and employ or retain such personnel and consult with such other
persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Manager shall be
deemed to include persons employed or retained by the Manager to furnish
statistical, research, and other factual information, advice regarding economic
factors and trends, information with respect to technical and scientific
developments, and such other information, advice and assistance as the Manager
may desire and request.
5. The Trust will from time to time furnish to the Manager detailed
statements of the investments and assets of the Trust and information as to its
investment objectives and needs, and will make available to the Manager such
financial reports, proxy statements, legal and other information relating to its
investments as may be in the possession of the Trust or available to it and such
information as the Manager may reasonably request.
6. Whenever the Manager has determined that the Trust should tender
securities pursuant to a "tender offer solicitation" the Manager shall designate
an affiliate as the "tendering dealer" so long as it is legally permitted to act
in such capacity under the Federal securities laws and rules thereunder and the
rules of any securities exchange or association of which such affiliate may be a
member. Such affiliated dealer shall not be obligated to make any additional
commitments of capital, expenses or personnel beyond that already committed
(other than normal periodic fees or payments necessary to maintain its corporate
existence and membership in the National Associations of Securities Dealers,
Inc.) as of the date of this Agreement. This Agreement shall not obligate the
Manager or such affiliate (i) to act pursuant to the foregoing requirement under
any circumstances in which they might reasonably believe that liability might be
imposed upon them as a result of so acting, or (ii) to institute legal or other
proceedings to collect fees which may be considered to be due from others to it
as a result of such a tender, unless the Trust shall enter into an Agreement
with such affiliate to reimburse it for all expenses connected with attempting
to collect such fees, including legal fees and expenses and that portion of the
compensation due to their employees which is attributable to the time involved
in attempting to collect such fees.
7. The Manager shall bear and pay the costs of rendering the services to be
performed by it under this Agreement. The Trust shall be responsible for all
other expenses of its operation, including, but not limited to, expenses
incurred in connection with the sale, issuance, registration, and transfer of
its shares; fees of its custodian, transfer and shareholder servicing agent;
salaries of officers and fees and expenses of trustees or members of any
advisory board or committee of the Trust who are not members of, affiliated with
or interested persons of the Manager; the cost of preparing and printing
reports, proxy statements and prospectuses of the Trust or other communications
for distribution to its shareholders; legal, auditing and accounts fees; the
fees of any trade associations of which the Trust is a member; fees and expenses
of registering and maintaining registration of its shares for sale under Federal
and applicable State securities laws; and all other charges and costs of its
operation plus any extraordinary and non-recurring expenses, except as herein
otherwise prescribed. To the extent the Manager incurs any costs or performs any
services which are an obligation of the Trust, as set forth herein, the Trust
shall promptly reimburse the Manager for such costs and expenses. To the extent
the services for which the Trust is obligated to pay are performed by the
Manager, the Manager shall be entitled to recover from the Trust only to the
extent of its costs for such services.
<PAGE>
8. (a) The Trust agrees to pay to the Manager, and the Manager agrees to
accept, as full compensation for all administrative and investment management
services furnished or provided to the Trust and as full reimbursement for all
expenses assumed by the Manager, a management fee computed at an annual
percentage rate of .80% of the average daily net assets of the Trust plus the
proceeds of any outstanding borrowings.
(b) The management fee shall be accrued daily by the Trust and paid to
the Manager at the end of each calendar month.
(c) If, for any fiscal year, the expenses borne by the Trust,
including the investment advisory fee, but excluding brokerage commissions
and fees, taxes, interest and to the extent permitted, any extraordinary
expenses such as litigation and non-recurring expenses, would exceed the
expense limitations applicable to the Trust imposed by the securities laws
or regulations thereunder of any state in which the Trust's shares are
qualified for sale, the Manager agrees to reduce its fee or reimburse the
Trust for all such excess expenses exceeding such limitation no later than
the last day of the first month of the next succeeding fiscal year. For the
purposes of this paragraph, the term "fiscal year" shall exclude the
portion of the current fiscal year which shall have elapsed prior to the
date hereof and shall include the portion of the then current fiscal year
which shall have elapsed at the date of termination of this Agreement.
(d) The management fee payable by the Trust hereunder shall be reduced
to the extent that an affiliate of the Manager has actually received cash
payments of tender offer solicitation fees less certain costs and expenses
incurred in connection therewith, as referred to in Paragraph 6 herein.
9. The Manager agrees that neither it nor any of its officers or employees
shall take any short position in the capital stock of the Trust. This
prohibition shall not prevent the purchase of such shares by any of the officers
and directors or bona fide employees of the Manager or any trust, pension,
profit-sharing or other benefit plan for such persons or affiliates thereof.
10. Nothing herein contained shall be deemed to require the Trust to take
any action contrary to its Trust Indenture or applicable statute or regulation,
or to relieve or deprive the Board of Trustees of the Trust of its
responsibility for and control of the conduct of the affairs of the Trust.
11. (a) In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties hereunder on the part of the
Manager, the Manager shall not be subject to liability to the Trust or to any
shareholder of the Trust for any act or omission in the course of, or connected
with, rendering services hereunder or for any losses that may be sustained in
the purchase, holding or sale of any investment by the Trust.
(b) Notwithstanding the foregoing, the Manager agrees to reimburse the
Trust for any and all costs, expenses, and counsel and trustees' fees
reasonably incurred by the Trust in the preparation, printing and
distribution of proxy statements, amendments to its Registration Statement,
holding of meetings of its shareholders or trustees, the conduct of factual
investigations, any legal or administrative proceedings including any
applications for exemptions or determinations by the Securities and
Exchange Commission which the Trust incurs as the result of action or
inaction of the Manager or any of its shareholders where the action or
inaction necessitating such expenditures (i) is directly or indirectly
related to any transaction or proposed transaction in the shares or control
of the Manager or its affiliates (or litigation related to any pending or
proposed future transaction in such shares or control) which shall have
been undertaken without the prior express approval of the Trust's Board of
Trustees; or (ii) is within the sole control of the Manager or any of its
affiliates or any of their officers, directors, employees or shareholders.
The Manager shall not be obligated pursuant to the provisions of this
Subparagraph 11(b), to reimburse the Trust for any expenditures related to
<PAGE>
the institution of an administrative proceeding or civil litigation by the
Trust or a Trust shareholder seeking to recover all or a portion of the
proceeds derived by any shareholder of the Manager or any of its affiliates
from the sale of his shares of the Manager, or similar matters. So long as
this Agreement is in effect, the Manager shall pay to the Trust the amount
due for expenses subject to this Subparagraph 11(b) within thirty (30) days
after a bill or statement has been received by the Trust therefor. This
provision shall not be deemed to be a waiver of any claim the Trust may
have or may assert against the Manager or others or costs, expenses, or
damages heretofore incurred by the Trust for costs, expenses, or damages
the Trust may hereinafter incur which are not reimbursable to it hereunder.
(c) No provision of this Agreement shall be construed to protect any
trustee or officer of the Trust, or the Manager, from liability in
violation of Section 17(h) and (i) of the Investment Company Act of 1940,
as amended.
12. This Agreement shall become effective on the date first written above,
subject to the condition that the Trust's Board of Trustees, including a
majority of those Trustees who are not interested persons (as such term is
defined in the Investment Company Act of 1940) of the Manager, and the
shareholders of the Trust, shall have approved this Agreement. Unless terminated
as provided herein, the Agreement shall continue in full force and effect for
two (2) years from the effective date of this Agreement, and shall continue in
effect from year to year thereafter so long as such continuation is specifically
approved at least annually by (i) the Board of Trustees of the Trust or by the
vote of a majority of the outstanding voting securities of the Trust, and (ii)
the vote of a majority of the Trustees of the Trust who are not parties to this
Agreement or interested persons thereof, cast in person at a meeting called for
the purpose of voting on such approval.
13. This Agreement may be terminated at any time, without payment of any
penalty, by the Board of Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Trust, upon sixty (60) days written notice
to the Manager, and by the Manager upon sixty (60) days written notice to the
Trust.
14. This Agreement shall terminate automatically in the event of any
transfer or assignment thereof, as defined in the Investment Company Act of
1940, as amended.
15. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby.
16. The term "majority of the outstanding voting securities" of the Trust
shall have the meaning as set forth in the Investment Company Act of 1940, as
amended.
17. In consideration of the execution of this Agreement the Manager, on
behalf of its sole shareholder, Pilgrim Group, Inc. hereby grants to the Trust
the right to use the name "Pilgrim" as part of its name. The Manager, on behalf
of its sole shareholder, Pilgrim Group, Inc. reserves the right to grant to
others the right to use the name "Pilgrim" including to any other investment
company. The Trust agrees that in the event this Agreement is terminated, the
Trust shall immediately take such steps as are necessary to amend its name and
remove the reference to "Pilgrim."
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers on the day and year first above written.
PILGRIM PRIME RATE TRUST
By:
---------------------------------
Title:
-------------------------------
PILGRIM INVESTMENTS, INC.
By:
---------------------------------
Title:
-------------------------------
<PAGE>
APPENDIX H
Portfolio Management Agreement
with HSBC Asset Management Americas, Inc. and
HSBC Asset Management Hong Kong, Limited
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 27th day of April, 1995 between Pilgrim Investments,
Inc., a Delaware corporation (the "Manager"), and HSBC Asset Management Americas
Inc., a New York corporation ("HSBC Americas"), and HSBC Asset Management Hong
Kong Limited, a Hong Kong corporation ("HSBC Hong Kong") (HSBC Americas and HSBC
Hong Kong being jointly referred to herein as the "Portfolio Manager").
WHEREAS, Pilgrim Advisory Funds, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end,
management investment company;
WHEREAS, the Fund is authorized to issue separate series, each of which
will offer a separate class of shares of common stock, each series having its
own investment objective or objectives, policies, and limitations;
WHEREAS, the Fund may offer shares of additional series in the future;
WHEREAS, pursuant to a Management Agreement, dated the date hereof (the
"Management Agreement"), a copy of which has been provided to the Portfolio
Manager, the Fund has retained the Manager to render advisory, management, and
administrative services with respect to each of the Fund's series; and
WHEREAS, pursuant to authority granted to the Manager in the Management
Agreement, the Manager wishes to retain the Portfolio Manager to furnish
investment advisory services to one or more of the series of the Fund, and the
Portfolio Manager is willing to furnish such services to the Fund and the
Manager;
NOW, THEREFORE, in consideration of the premises and the promises and
mutual covenants herein contained, it is agreed between the Manager and the
Portfolio Manager as follows:
1. Appointment. The Manager hereby appoints the Portfolio Manager to act as
the investment adviser and manager to the Pilgrim Asia-Pacific Equity Fund
series of the Fund (the "Series") for the periods and on the terms set forth in
this Agreement. The Portfolio Manager accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
In the event the Fund designates one or more series (other than the Series)
with respect to which the Manager wishes to retain the Portfolio Manager to
render investment advisory services hereunder, it shall notify the Portfolio
Manager in writing. If the Portfolio Manager is willing to render such services,
it shall notify the Manager in writing, whereupon such series shall become a
Series hereunder, and be subject to this Agreement.
<PAGE>
2. Portfolio Management Duties. Subject to the supervision of the Fund's
Board of Directors and the Manager, the Portfolio Manager will provide a
continuous investment program for the Series' portfolio and determine in its
discretion the composition of the assets of the Series' portfolio, including
determination of the purchase, retention, or sale of the securities, cash, and
other investments contained in the portfolio. The Portfolio Manager will provide
investment research and conduct a continuous program of evaluation, investment,
sales, and reinvestment of the Series' assets by determining the securities and
other investments that shall be purchased, entered into, sold, closed, or
exchanged for the Series, when these transactions should be executed, and what
portion of the assets of the Series should be held in the various securities and
other investments in which it may invest. To the extent permitted by the
investment policies of the Series, the Portfolio Manager shall make decisions
for the Series as to foreign currency matters and make determinations as to and
execute and perform foreign currency exchange contracts on behalf of the Series.
The Portfolio Manager will provide the services under this Agreement in
accordance with the Series' investment objective or objectives, policies, and
restrictions as stated in the Fund's Registration Statement filed with the
Securities and Exchange Commission ("SEC"), as amended, copies of which shall be
sent to the Portfolio Manager by the Manager. The Portfolio Manager further
agrees as follows:
(a) The Portfolio Manager will not take any action that would cause
the Series to fail to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code.
(b) The Portfolio Manager will conform with the 1940 Act and all rules
and regulations thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the Fund's Board of
Directors of which the Portfolio Manager has been sent a copy, and the
provisions of the Registration Statement of the Fund filed under the
Securities Act of 1933 (the "1933 Act") and the 1940 Act, as supplemented
or amended, of which the Portfolio Manager has received a copy.
(c) The Portfolio Manager will vote all proxies solicited by or with
respect to the issuers of securities in which assets of the Series are
invested. The Portfolio Manager will maintain appropriate records detailing
its voting of proxies on behalf of the Fund and will provide to the Fund at
least annually a report setting forth the proposals voted on and how the
Series' shares were voted since the prior report, including the name of the
corresponding issuers.
(d) On occasions when the Portfolio Manager deems the purchase or sale
of a security to be in the best interest of the Series as well as of other
investment advisory clients of the Portfolio Manager or any of its
affiliates, the Portfolio Manager may, to the extent permitted by
applicable laws and regulations, but shall not be obligated to, aggregate
the securities to be so sold or purchased with those of its other clients
where such aggregation is not inconsistent with the policies set forth in
the Registration Statement. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction,
will be made by the Portfolio Manager in a manner that is fair and
equitable in the judgment of the Portfolio Manager in the exercise of its
fiduciary obligations to the Fund and to such other clients, subject to
review by the Manager and the Fund's Board of Directors.
(e) In connection with the purchase and sale of securities for the
Series, the Portfolio Manager will arrange for the transmission to the
custodian and portfolio accounting agent for the Series on a daily basis,
such confirmation, trade tickets, and other documents and information,
including, but not limited to, Cusip, Cedel, or other numbers that identify
securities to be purchased or sold on behalf of the Series, as may be
reasonably necessary to enable the custodian and portfolio accounting agent
to perform its administrative and recordkeeping responsibilities with
respect to the Series. With respect to portfolio securities to be settled
through the Depository Trust Company, the Portfolio Manager will arrange
for the prompt transmission of the confirmation of such trades to the
Fund's custodian and portfolio accounting agent.
<PAGE>
(f) The Portfolio Manager will assist the custodian and portfolio
accounting agent for the Fund in determining or confirming, consistent with
the procedures and policies stated in the Registration Statement for the
Fund, the value of any portfolio securities or other assets of the Series
for which the custodian and portfolio accounting agent seeks assistance
from or identifies for review by the Portfolio Manager. The parties
acknowledge that the Portfolio Manager is not a custodian of Series' assets
and will not take possession or custody of such assets.
(g) The Portfolio Manager will make available to the Fund and the
Manager, promptly upon request, all of the Series' investment records and
ledgers maintained by the Portfolio Manager (which shall not include the
records and ledgers maintained by the custodian or portfolio accounting
agent for the Fund) as are necessary to assist the Fund and the Manager to
comply with requirements of the 1940 Act and the Investment Advisers Act of
1940 (the "Advisers Act"), as well as other applicable laws. The Portfolio
Manager will furnish to regulatory authorities having the requisite
authority any information or reports in connection with such services in
respect to the Series which may be requested in order to ascertain whether
the operations of the Fund are being conducted in a manner consistent with
applicable laws and regulations.
(h) The Portfolio Manager will provide reports to the Fund's Board of
Directors for consideration at meetings of the Board on the investment
program for the Series and the issuers and securities represented in the
Series' portfolio, and will furnish the Fund's Board of Directors with
respect to the Series such periodic and special reports as the Directors
and the Manager may reasonably request. The Portfolio Manager will provide
the Manager, no later than the 20th day following the end of each of the
first three fiscal quarters of the Series and the 45th day following the
end of the Series' fiscal year, a letter to shareholders (to be subject to
review and editing by the Manager) containing a discussion of those factors
referred to in Item 5A(a) of 1940 Act Form N-1A in respect of both the
prior quarter and the fiscal year to date.
3. Broker-Dealer Selection. The Portfolio Manager is authorized to make
decisions to buy and sell securities and other investments for the Series'
portfolio, broker-dealer selection, and negotiation of brokerage commission
rates. The Portfolio Manager's primary consideration in effecting a security
transaction will be to obtain the best execution for the Series, taking into
account the factors specified in the prospectus and/or statement of additional
information for the Fund, and determined in consultation with the Manager, which
include price (including the applicable brokerage commission or dollar spread),
the size of the order, the nature of the market for the security, the timing of
the transaction, the reputation, the experience and financial stability of the
broker-dealer involved, the quality of the service, the difficulty of execution,
and the execution capabilities and operational facilities of the firm involved,
and the firm's risk in positioning a block of securities. Accordingly, the price
to the Series in any transaction may be less favorable than that available from
another broker-dealer if the difference is reasonably justified, in the judgment
of the Portfolio Manager in the exercise of its fiduciary obligations to the
Fund, by other aspects of the portfolio execution services offered. Subject to
such policies as the Fund's Board of Directors may determine and consistent with
Section 28(e) of the Securities Exchange Act of 1934, the Portfolio Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Agreement or otherwise solely by reason of its having caused the
Series to pay a broker-dealer for effecting a portfolio investment transaction
in excess of the amount of commission another broker-dealer would have charged
for effecting that transaction, if the Portfolio Manager determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker-dealer, viewed in
terms of either that particular transaction or the Portfolio Manager's or the
<PAGE>
Manager's overall responsibilities with respect to the Series and to their
respective other clients as to which they exercise investment discretion. The
Portfolio Manager will consult with the Manager to the end that portfolio
transactions on behalf of the Series are directed to broker-dealers on the basis
of criteria reasonably considered appropriate by the Manager. To the extent
consistent with these standards, the Portfolio Manager is further authorized to
allocate the orders placed by it on behalf of the Series to the Portfolio
Manager if it is registered as a broker-dealer with the SEC, to an affiliated
broker-dealer, or to such brokers and dealers who also provide research or
statistical material, or other services to the Series, the Portfolio Manager, or
an affiliate of the Portfolio Manager. Such allocation shall be in such amounts
and proportions as the Portfolio Manager shall determine consistent with the
above standards, and the Portfolio Manager will report on said allocation
regularly to the Fund's Board of Directors indicating the broker-dealers to
which such allocations have been made and the basis therefor.
4. Disclosure about Portfolio Manager. The Portfolio Manager has reviewed
the Registration Statement for the Fund filed with the SEC that contains
disclosure about the Portfolio Manager, and represents and warrants that, with
respect to the disclosure about the Portfolio Manager or information relating,
directly or indirectly, to the Portfolio Manager, such Registration Statement
contains, as of the date hereof, no untrue statement of any material fact and
does not omit any statement of a material fact which was required to be stated
therein or necessary to make the statements contained therein not misleading.
Each of HSBC Americas and HSBC Hong Kong further represents and warrants that it
is a duly registered investment adviser under the Advisers Act. The Manager
acknowledges that it has received from HSBC Americas and HSBC Hong Kong, not
less than 48 hours prior to the execution and delivery of this Agreement, a copy
of each such party's Form ADV, Part II.
5. Expenses. During the term of this Agreement, the Portfolio Manager will
pay all expenses incurred by it and its staff and for their activities in
connection with its portfolio management duties under this Agreement, except as
provided in Section 11. The Manager or the Fund shall be responsible for all the
expenses of the Fund's operations.
6. Compensation. For the services provided, the Manager will pay the
Portfolio Manager a monthly fee, in arrears, equal to 1/12 of .50% of the
Series' average daily net assets during the month. Payment of the fee will be
due on the 10th day of the following month. The fee will be appropriately
prorated to reflect any portion of a calendar month that this Agreement is not
in effect among the parties. In accordance with the provisions of the Management
Agreement, the Manager is solely responsible for the payment of fees to the
Portfolio Manager, and the Portfolio Manager agrees to seek payment of its fees
solely from the Manager; provided, however, that if the Fund fails to pay the
Manager all or a portion of the management fee under said Management Agreement
when due, and the amount that was paid is insufficient to cover the Portfolio
Manager's fee under this Agreement for the period in question, then the
Portfolio Manager may enforce against the Fund any rights it may have as a
third-party beneficiary under the Management Agreement and the Manager will (i)
not be obligated to pay to the Portfolio Manager the deficiency until actually
collected from the Fund and (ii) take all steps appropriate under the
circumstances to collect the amount due from the Fund.
<PAGE>
7. Compliance.
(a) The Portfolio Manager agrees that it shall immediately notify the
Manager and the Fund (1) in the event that the SEC has censured the
Portfolio Manager; placed limitations upon its activities, functions or
operations; suspended or revoked its registration as an investment adviser;
or has commenced proceedings or an investigation that may result in any of
these actions, or (2) upon having a reasonable basis for believing that the
Series has ceased to qualify or might not qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code. The Portfolio
Manager further agrees to notify the Manager and the Fund immediately of
any material fact known to the Portfolio Manager respecting or relating to
the Portfolio Manager that is not contained in the Registration Statement
or prospectus for the Fund (which describes the Series), or any amendment
or supplement thereto, or of any statement contained therein that becomes
untrue in any material respect.
(b) The Manager agrees that it shall immediately notify the Portfolio
Manager (1) in the event that the SEC has censured the Manager or the Fund;
placed limitations upon either of their activities, functions, or
operations; suspended or revoked the Manager's registration as an
investment adviser; or has commenced proceedings or an investigation that
may result in any of these actions, or (2) upon having a reasonable basis
for believing that the Series has ceased to qualify or might not qualify as
a regulated investment company under Subchapter M of the Internal Revenue
Code.
8. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Portfolio Manager hereby agrees that all records which
it maintains for the Series are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's or the
Manager's request, although the Portfolio Manager may, at its own expense, make
and retain a copy of such records. The Portfolio Manager further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-l under the 1940 Act and to preserve the
records required by Rule 204-2 under the Advisers Act for the period specified
in the Rule.
9. Cooperation; Confidentiality. Each party to this Agreement agrees to
cooperate with the other party and with all appropriate governmental authorities
having the requisite jurisdiction (including, but not limited to, the SEC) in
connection with any investigation or inquiry relating to this Agreement or the
Fund. Subject to the foregoing, the Portfolio Manager shall treat as
confidential all information pertaining to the Fund and actions of the Fund, the
Manager and the Portfolio Manager, and the Manager shall treat as confidential
and use only in connection with the Series all information furnished to the Fund
or the Manager by the Portfolio Manager, in connection with its duties under the
agreement except that the aforesaid information need not be treated as
confidential if required to be disclosed under applicable law, if generally
available to the public through means other than by disclosure by the Portfolio
Manager or the Manager, or if available from a source other than the Manager,
Portfolio Manager or this Fund.
10. Representations Respecting Portfolio Manager. The Manager agrees that
neither the Manager, nor affiliated persons of the Manager, shall give any
information or make any representations or statements in connection with the
sale of shares of the Series concerning the Portfolio Manager or the Series
other than the information or representations contained in the Registration
Statement, prospectus, or statement of additional information for the Fund's
shares, as they may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved in advance by the Portfolio Manager, except with the prior
permission of the Portfolio Manager. The parties agree that in the event that
the Manager or an affiliated person of the Manager sends sales literature or
other promotional material to the Portfolio Manager for its approval and the
Portfolio Manager has not commented within 10 days, the Manager and its
affiliated persons may use and distribute such sales literature or other
promotional material.
<PAGE>
11. Additional Covenants of the Portfolio Manager.
(a) During the first year following the effectiveness of the Fund's
initial registration statement, the Portfolio Manager will make available
Fredric Lutcher III or Ian Burden to accompany representatives of the
Fund's distributor on six (6) days of "road show" marketing/due diligence
presentations to dealers and potential dealers in the Fund's shares, the
timing and location (within the United States) of such six presentations to
be chosen by the Manager following consultation with the Portfolio Manager.
The Portfolio Manager may substitute a senior member of its firm for Mr.
Lutcher or Mr. Burden, if such individual is reasonably acceptable to the
Manager. The Manager will reimburse the Portfolio Manager, or cause the
Fund's distributor to reimburse the Portfolio Manager, for the reasonable
out-of-pocket expenses incurred by the Portfolio Manager in assisting in
such presentations.
(b) During the term of this Agreement and during the six-month period
beginning the date that this Agreement terminates, neither the Portfolio
Manager nor any of the Portfolio Manager's affiliates will serve or act as
an investment adviser or sub-investment adviser to any other SEC-registered
open-end investment company or series thereof having investment objectives
similar to those of the Series. The Portfolio Manager shall not be bound by
this covenant in the event that the termination is not voluntarily effected
by the Portfolio Manager, and shall not be bound by this covenant for any
period in the event that the Portfolio Manager does not receive
compensation for its services from the Manager or the Fund as required by
the terms of this agreement. Furthermore, the Portfolio Manager shall not
be bound by this covenant with respect to any SEC registered open-end
investment company or series thereof to which the Portfolio Manager is
appointed as investment adviser or subadviser pursuant to any merger,
acquisition or any other corporate action to which HSBC Holdings p.l.c, or
any of its subsidiaries is a party and which involves the change in
ownership of an investment advisory business or company.
12. Control. Notwithstanding any other provision of the Agreement, it is
understood and agreed that the Fund shall at all times retain the ultimate
responsibility for and control of all functions performed pursuant to this
Agreement and has reserved the right to reasonably direct any action hereunder
taken on its behalf by the Portfolio Manager.
13. Liability. Except as may otherwise be required by the 1940 Act or the
rules thereunder or other applicable law, and subject to the applicable
provisions of Paragraph 2(f) of this Agreement (which deal with non-investment
advisory services), the Manager agrees that the Portfolio Manager, any
affiliated person of the Portfolio Manager, and each person, if any, who, within
the meaning of Section 15 of the 1933 Act controls the Portfolio Manager (1)
shall bear no responsibility and shall not be subject to any liability for any
act or omission respecting any series of the Fund that is not a Series
hereunder, and (2) shall not be liable for, or subject to any damages, expenses,
or losses in connection with, any act or omission connected with or arising out
of any services rendered under this Agreement, except by reason of willful
misfeasance, bad faith, or gross negligence in the performance of the Portfolio
Manager's duties, or by reason of reckless disregard of the Portfolio Manager's
obligations and duties under this Agreement.
14. Duration and Termination.
(a) This Agreement shall become effective on the date first written
above, subject to the condition that the Fund's Board of Directors,
including a majority of those Directors who are not interested persons (as
such term is defined in the 1940 Act) of the Manager, and the shareholders
of the Series, shall have approved this Agreement. Unless terminated as
provided herein, the Agreement shall continue in full force and effect for
<PAGE>
two (2) years from the effective date of this Agreement, and shall continue
from year to year thereafter with respect to each Series covered by this
Agreement; provided that such annual continuance is specifically approved
each year by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act)
of each Series, and (b) the vote of a majority of those Directors who are
not parties to this Agreement or interested persons (as such term is
defined in the 1940 Act) of any such party to this Agreement cast in person
at a meeting called for the purpose of voting on such approval. However,
any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 1940 Act) of a Series shall be
effective to continue this Agreement with respect to such Series
notwithstanding (i) that this Agreement has not been approved by the
holders of a majority of the outstanding shares of any other Series or (ii)
that this agreement has not been approved by the vote of a majority of the
outstanding shares of the Fund, unless such approval shall be required by
any other applicable law or otherwise. Notwithstanding the foregoing, this
Agreement may be terminated with respect to any Series covered by this
Agreement: (a) by the Manager at any time without penalty, upon sixty (60)
days' written notice to the Portfolio Manager and the Fund, (b) at any time
without payment of any penalty by the Fund, by the Fund's Board of
Directors or a majority of the outstanding voting securities of each
Series, upon sixty (60) days' written notice to the Manager and the
Portfolio Manager, or (c) by the Portfolio Manager upon three (3) months
written notice unless the Fund or the Manager requests additional time to
find a replacement for the Portfolio Manager, in which case the Portfolio
Manager shall allow the additional time requested by the Fund or Manager
not to exceed three (3) additional months beyond the initial three-month
notice period; provided further, however, that the Portfolio Manager may
terminate this Agreement at any time without penalty, effective upon
written notice to the Manager and the Fund, in the event either the
Portfolio Manager (acting in good faith) or the Manager ceases to be
registered as an investment adviser under the Advisers Act or otherwise
becomes legally incapable of providing investment management services
pursuant to its respective contract with the Fund, or in the event the
Manager becomes bankrupt or otherwise incapable of carrying out its
obligations under this Agreement, or in the event that the Portfolio
Manager does not receive compensation for its services from the Manager or
the Fund as required by the terms of this agreement. In the event of
termination for any reason, all records of each Series for which the
Agreement is terminated shall promptly be returned to the Manager or the
Fund, free from any claim or retention of rights in such record by the
Portfolio Manager, although the Portfolio Manager may, at its own expense,
make and retain a copy of such records. This Agreement shall automatically
terminate in the event of its assignment (as such term is described in the
1940 Act). In the event this Agreement is terminated or is not approved in
the manner described above, the Sections or Paragraphs numbered 2(g), 8, 9,
10, 11(b), 12, 13 and 16 of this Agreement shall remain in effect, as well
as any applicable provision of this Section numbered 14 and, to the extent
that only amounts are owed to the Portfolio Manager as compensation for
services rendered while the agreement was in effect, Section 6.
(b) Notices.
Any notice must be in writing and shall be sufficiently given (1) when
delivered in person, (2) when dispatched by telegram or electronic facsimile
transfer (confirmed in writing by postage prepaid first class air mail
simultaneously dispatched), (3) when sent by internationally recognized
overnight courier service (with receipt confirmed by such overnight courier
service), or (4) when sent by registered or certified mail, to the other party
at the address of such party set forth below or at such other address as such
party may from time to time specify in writing to the other party.
<PAGE>
If to the Fund:
Pilgrim Advisory Funds, Inc.
40 North Central Avenue
Phoenix, AZ 85004-4424
Attention: James M. Hennessy
If to the Portfolio Manager:
HSBC Asset Management Americas, Inc.
250 Park Avenue
New York, NY 10177-0012
Attention: Fredric M. Lutcher, III
15. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) the holders of a majority of the
outstanding voting securities of the Series, and (ii) the Directors of the Fund,
including a majority of the Directors of the Fund who are not interested persons
of any party to this Agreement, cast in person at a meeting called for the
purpose of voting on such approval, if such approval is required by applicable
law.
16. Use of Name.
(a) It is understood that the name "Pilgrim Investments, Inc." or any
derivative thereof (including the name or phrase "Pilgrim") or logo
associated with that name is the valuable property of the Manager and/or
its affiliates, and that the Portfolio Manager has the right to use such
name (or derivative or logo) only with the approval of the Manager and only
so long as the Manager is Manager to the Fund and/or the Series. Upon
termination of the Management Agreement between the Fund and the Manager,
the Portfolio Manager shall forthwith cease to use such name (or derivative
or logo).
(b) It is understood that the names "HSBC Asset Management Americas
Inc." and "HSBC Asset Management Hong Kong Ltd." or any derivative thereof
or logo associated with that name is the valuable property of the Portfolio
Manager and its affiliates and that the Fund and/or the Series have the
right to use such name (or derivative or logo) in offering materials of the
Fund with the approval of the Portfolio Manager and for so long as the
Portfolio Manager is a portfolio manager to the Fund and/or the Series.
Upon termination of this Agreement, the Manager shall forthwith cause the
Fund to cease to use such name (or derivative or logo).
17. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of New
York, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act or rules or orders of the
SEC thereunder, and without regard for the conflicts of laws principle
thereof. The term "affiliate" or "affiliated person" as used in this
Agreement shall mean "affiliated person" as defined in Section 2(a)(3) of
the 1940 Act.
(b) The Manager and the Portfolio Manager acknowledge that the Fund
enjoys the rights of a third-party beneficiary under this Agreement, and
the Manager acknowledges that the Portfolio Manager enjoys the rights of a
third party beneficiary under the Management Agreement.
<PAGE>
(c) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
(d) To the extent permitted under Section 14 of this Agreement, this
Agreement may only be assigned by any party with the prior written consent
of the other parties.
(e) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby, and to this extent, the provisions
of this Agreement shall be deemed to be severable.
(f) Nothing herein shall be construed as constituting the Portfolio
Manager as an agent or co-partner of the Manager, or constituting the
Manager as an agent or co-partner of the Portfolio Manager. Nothing herein
shall be construed as constituting HSBC Americas as an agent or co-partner
of HSBC Hong Kong, or constituting HSBC Hong Kong an agent or co-partner of
HSBC Americas, it being understood that references in this Agreement to
such parties as the Portfolio Manager are made for convenience only.
(g) This agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
PILGRIM INVESTMENTS, INC.
By:
--------------------------------
Title:
----------------------------
HSBC ASSET MANAGEMENT AMERICAS,
INC.
By:
--------------------------------
Title:
----------------------------
HSBC ASSET MANAGEMENT HONG KONG
LIMITED
By:
--------------------------------
Title:
----------------------------
<PAGE>
APPENDIX I
Portfolio Management Agreement
with Nicholas-Applegate Capital Management
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this ____ day of ________, 1999 between Pilgrim Investments,
Inc., a Delaware corporation (the "Manager"), and Nicholas-Applegate Capital
Management, a California limited partnership (the "Portfolio Manager").
WHEREAS, Pilgrim Mutual Funds (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end,
management investment company;
WHEREAS, the Fund is authorized to issue separate series, each series
having its own investment objective or objectives, policies, and limitations;
WHEREAS, the Fund may offer shares of additional series in the future, and
currently intends to offer shares of additional series in the future;
WHEREAS, pursuant to a Management Agreement, dated the date hereof (the
"Management Agreement"), a copy of which has been provided to the Portfolio
Manager, the Fund has retained the Manager to render advisory and management
services with respect to each of the Fund's series; and
WHEREAS, pursuant to authority granted to the Manager in the Management
Agreement, the Manager wishes to retain the Portfolio Manager to furnish
investment advisory services to one or more of the series of the Fund, and the
Portfolio Manager is willing to furnish such services to the Fund and the
Manager;
NOW, THEREFORE, in consideration of the premises and the promises and
mutual covenants herein contained, it is agreed between the Manager and the
Portfolio Manager as follows:
1. Appointment. The Manager hereby appoints the Portfolio Manager to act as
the investment adviser and manager to the series of the Fund set forth on
Schedule A hereto (the "Series") for the periods and on the terms set forth in
this Agreement The Portfolio Manager accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
In the event the Fund designates one or more series (other than the Series)
with respect to which the Manager wishes to retain the Portfolio Manager to
render investment advisory services hereunder, it shall notify the Portfolio
Manager in writing. If the Portfolio Manager is willing to render such services,
it shall notify the Manager in writing, whereupon such series shall become a
Series hereunder, and be subject to this Agreement.
2. Portfolio Management Duties. Subject to the supervision of the Fund's
Board of Trustees and the Manager, the Portfolio Manager will provide a
continuous investment program for each Series' portfolio and determine in its
discretion the composition of the assets of each Series' portfolio, including
determination of the purchase, retention, or sale of the securities, cash, and
other investments contained in the portfolio. The Portfolio Manager will provide
investment research and conduct a continuous program of evaluation, investment,
sales, and reinvestment of each Series' assets by determining the securities and
other investments that shall be purchased, entered into, sold, closed, or
exchanged for the Series, when these transactions should be executed, and what
portion of the assets of the Series should be held in the various securities and
other investments in which it may invest. To the extent permitted by the
<PAGE>
investment policies of each Series, the Portfolio Manager shall make decisions
for the Series as to foreign currency matters and make determinations as to and
execute and perform foreign currency exchange contracts on behalf of the Series.
The Portfolio Manager will provide the services under this Agreement in
accordance with each Series' investment objective or objectives, policies, and
restrictions as stated in the Fund's Registration Statement filed with the
Securities and Exchange Commission ("SEC"), as amended, copies of which shall be
sent to the Portfolio Manager by the Manager prior to the commencement of this
Agreement and promptly following any such amendment. The Portfolio Manager
further agrees as follows:
(a) The Portfolio Manager will conform with the 1940 Act and all rules
and regulations thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the Fund's Board of
Trustees of which the Portfolio Manager has been sent a copy, and the
provisions of the Registration Statement of the Fund filed under the
Securities Act of 1933 (the "1933 Act") and the 1940 Act, as supplemented
or amended, of which the Portfolio Manager has received a copy, and with
the Manager's portfolio manager operating policies and procedures as in
effect on the date hereof, as such policies and procedures may be revised
or amended by the Manager and agreed to by the Portfolio Manager.
(b) In connection with the purchase and sale of securities for each
Series, the Portfolio Manager will arrange for the transmission to the
custodian and portfolio accounting agent for the Series on a daily basis,
such confirmation, trade tickets, and other documents and information,
including, but not limited to, Cusip, Cedel, or other numbers that identify
securities to be purchased or sold on behalf of the Series, as may be
reasonably necessary to enable the custodian and portfolio accounting agent
to perform its administrative and recordkeeping responsibilities with
respect to the Series. With respect to portfolio securities to be settled
through the Depository Trust Company, the Portfolio Manager will arrange
for the prompt transmission of the confirmation of such trades to the
Fund's custodian and portfolio accounting agent.
(c) The Portfolio Manager will make available to the Fund and the
Manager, promptly upon request, any of the Series' investment records and
ledgers maintained by the Portfolio Manager (which shall not include the
records and ledgers maintained by the custodian or portfolio accounting
agent for the Fund) as are necessary to assist the Fund and the Manager to
comply with requirements of the 1940 Act and the Investment Advisers Act of
1940 (the "Advisers Act"), as well as other applicable laws. The Portfolio
Manager will furnish to regulatory authorities having the requisite
authority any information or reports in connection with such services in
respect to the Series which may be requested in order to ascertain whether
the operations of the Fund are being conducted in a manner consistent with
applicable laws and regulations.
(d) The Portfolio Manager will provide reports to the Fund's Board of
Trustees for consideration at meetings of the Board on the investment
program for each Series and the issuers and securities represented in each
Series' portfolio, and will furnish the Fund's Board of Trustees with
respect to each Series such periodic and special reports as the Trustees
and the Manager may reasonably request.
3. Broker-Dealer Selection. The Portfolio Manager is authorized to make
decisions to buy and sell securities and other investments for each Series'
portfolio, broker-dealer selection, and negotiation of brokerage commission
rates in effecting a security transaction. The Portfolio Manager's primary
consideration in effecting a security transaction will be to obtain the best
execution for the Series, taking into account the factors specified in the
prospectus and/or statement of additional information for the Fund, and
determined in consultation with the Manager, which include price (including the
applicable brokerage commission or dollar spread), the size of the order, the
<PAGE>
nature of the market for the security, the timing of the transaction, the
reputation, the experience and financial stability of the broker-dealer
involved, the quality of the service, the difficulty of execution, and the
execution capabilities and operational facilities of the firm involved, and the
firm's risk in positioning a block of securities. Accordingly, the price to a
Series in any transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified, in the judgment of the
Portfolio Manager in the exercise of its fiduciary obligations to the Fund, by
other aspects of the portfolio execution services offered. Subject to such
policies as the Fund's Board of Trustees or Manager may determine and consistent
with Section 28(e) of the Securities Exchange Act of 1934, the Portfolio Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Agreement or otherwise solely by reason of its having caused a
Series to pay a broker-dealer for effecting a portfolio investment transaction
in excess of the amount of commission another broker-dealer would have charged
for effecting that transaction, if the Portfolio Manager determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker-dealer, viewed in
terms of either that particular transaction or the Portfolio Manager's or the
Manager's overall responsibilities with respect to the Series and to their
respective other clients as to which they exercise investment discretion. The
Portfolio Manager will consult with the Manager to the end that portfolio
transactions on behalf of a Series are directed to broker-dealers on the basis
of criteria reasonably considered appropriate by the Manager. To the extent
consistent with these standards, the Portfolio Manager is further authorized to
allocate the orders placed by it on behalf of a Series to the Portfolio Manager
if it is registered as a broker-dealer with the SEC, to an affiliated
broker-dealer, or to such brokers and dealers who also provide research or
statistical material, or other services to the Series, the Portfolio Manager, or
an affiliate of the Portfolio Manager. Such allocation shall be in such amounts
and proportions as the Portfolio Manager shall determine consistent with the
above standards, and the Portfolio Manager will report on said allocation
regularly to the Fund's Board of Trustees indicating the broker-dealers to which
such allocations have been made and the basis therefor.
4. Disclosure about Portfolio Manager. The Portfolio Manager has reviewed
Post-Effective Amendment No. 71 to the Registration Statement for the Fund
filed with the SEC that contains disclosure about the Portfolio Manager, and
represents and warrants that, with respect to the disclosure about the Portfolio
Manager or information relating, directly or indirectly, to the Portfolio
Manager, such Registration Statement contains, as of the date hereof, no untrue
statement of any material fact and does not omit any statement of a material
fact which was required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading. The Portfolio Manager further represents and warrants that it is a
duly registered investment adviser under the Advisers Act and will maintain such
registration so long as this Agreement remains in effect. The Portfolio Manager
will provide the Manager with a copy of the Portfolio Manager's Form ADV, Part
II at the time the Form ADV is filed with the SEC.
5. Expenses. During the term of this Agreement, the Portfolio Manager will
pay all expenses incurred by it and its staff and for their activities in
connection with its portfolio management duties under this Agreement. The
Manager or the Fund shall be responsible for all the expenses of the Fund's
operations.
6. Compensation. For the services provided to each Series, the Manager will
pay the Portfolio Manager an annual fee equal to the amount specified for such
Series in Schedule A hereto, payable monthly in arrears. The fee will be
appropriately prorated to reflect any portion of a calendar month that this
Agreement is not in effect among the parties. In accordance with the provisions
of the Management Agreement, the Manager is solely responsible for the payment
of fees to the Portfolio Manager, and the Portfolio Manager agrees to seek
payment of its fees solely from the Manager; provided, however, that if the Fund
<PAGE>
fails to pay the Manager all or a portion of the management fee under said
Management Agreement when due, and the amount that was paid is insufficient to
cover the Portfolio Manager's fee under this Agreement for the period in
question, then the Portfolio Manager may enforce against the Fund any rights it
may have as a third-party beneficiary under the Management Agreement and the
Manager will take all steps appropriate under the circumstances to collect the
amount due from the Fund.
7. Compliance.
(a) The Portfolio Manager agrees to use reasonable compliance
techniques as the Manager or the Board of Trustees may adopt, including any
written compliance procedures.
(b) The Portfolio Manager agrees that it shall promptly notify the
Manager and the Fund (1) in the event that the SEC has censured the
Portfolio Manager; placed limitations upon its activities, functions or
operations; suspended or revoked its registration as an investment adviser;
or has commenced proceedings or an investigation that may result in any of
these actions, or (2) upon having a reasonable basis for believing that the
Series has ceased to qualify or might not qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code. The Portfolio
Manager further agrees to notify the Manager and the Fund promptly of any
material fact known to the Portfolio Manager respecting or relating to the
Portfolio Manager that is not contained in the Registration Statement or
prospectus for the Fund (which describes the Series), or any amendment or
supplement thereto, or if any statement contained therein that becomes
untrue in any material respect.
(c) The Manager agrees that it shall promptly notify the Portfolio
Manager (1) in the event that the SEC has censured the Manager or the Fund;
placed limitations upon either of their activities, functions, or
operations; suspended or revoked the Manager's registration as an
investment adviser; or has commenced proceedings or an investigation that
may result in any of these actions, or (2) upon having a reasonable basis
for believing that the Series has ceased to qualify or might not qualify as
a regulated investment company under Subchapter M of the Internal Revenue
Code.
8. Books and Records. The Portfolio Manager hereby agrees that all records
which it maintains for the Series are the property of the Fund and further
agrees to surrender promptly to the Fund any of such records upon the Fund's or
the Manager's request in compliance with the requirements of Rule 31a-3 under
the 1940 Act, although the Portfolio Manager may, at its own expense, make and
retain a copy of such records. The Portfolio Manager further agrees to preserve
for the periods prescribed by Rule 31a-2 under the 1940 Act the records required
to be maintained by Rule 31a-l under the 1940 Act.
9. Cooperation; Confidentiality. Each party to this Agreement agrees to
cooperate with the other party and with all appropriate governmental authorities
having the requisite jurisdiction (including, but not limited to, the SEC) in
connection with any investigation or inquiry relating to this Agreement or the
Fund. Subject to the foregoing, the Portfolio Manager shall treat as
confidential all information pertaining to the Fund and actions of the Fund, the
Manager and the Portfolio Manager, and the Manager shall treat as confidential
and use only in connection with the Series all information furnished to the Fund
or the Manager by the Portfolio Manager, in connection with its duties under the
agreement except that the aforesaid information need not be treated as
confidential if required to be disclosed under applicable law, if generally
<PAGE>
available to the public through means other than by disclosure by the Portfolio
Manager or the Manager, or if available from a source other than the Manager,
Portfolio Manager or this Fund.
10. Representations Respecting Portfolio Manager. The Manager agrees that
neither the Manager, nor affiliated persons of the Manager, shall give any
information or make any representations or statements in connection with the
sale of shares of the Series concerning the Portfolio Manager or the Series
other than the information or representations contained in the Registration
Statement, prospectus, or statement of additional information for the Fund's
shares, as they may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved in advance by the Portfolio Manager, except with the prior
permission of the Portfolio Manager. 11. [Intentionally Omitted]
12. Control. Notwithstanding any other provision of the Agreement, it is
understood and agreed that the Fund shall at all times retain the ultimate
responsibility for and control of all functions performed pursuant to this
Agreement and has reserved the right to reasonably direct any action hereunder
taken on its behalf by the Portfolio Manager.
13. Liability. Except as may otherwise be required by the 1940 Act or the
rules thereunder or other applicable law, the Manager agrees that the Portfolio
Manager, any affiliated person of the Portfolio Manager, and each person, if
any, who, within the meaning of Section 15 of the 1933 Act controls the
Portfolio Manager (1) shall bear no responsibility and shall not be subject to
any liability for any act or omission respecting any series of the Fund that is
not a Series hereunder, and (2) shall not be liable for, or subject to any
damages, expenses, or losses in connection with, any act or omission connected
with or arising out of any services rendered under this Agreement, except by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of the Portfolio Manager's duties, or by reason of reckless disregard of the
Portfolio Manager's obligations and duties under this Agreement.
14. Indemnification.
(a) The Manager agrees to indemnify and hold harmless the Portfolio
Manager, any affiliated person of the Portfolio Manager, and each person,
if any, who, within the meaning of Section 15 of the 1933 Act controls
("controlling person") the Portfolio Manager (all of such persons being
referred to as "Portfolio Manager Indemnified Persons") against any and all
losses, claims, damages, liabilities, or litigation (including legal and
other expenses) to which a Portfolio Manager Indemnified Person may become
subject under the 1933 Act, the 1940 Act, the Advisers Act, under any other
statute, at common law or otherwise, arising out of the Manager's
responsibilities to the Trust which (1) may be based upon the Manager's
willful misfeasance, bad faith, or negligence in the performance of its
duties (which could include a negligent action or a negligent omission to
act), or by reason of the Manager's reckless disregard of its obligations
and duties under this Agreement or (2) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or prospectus covering shares of the Trust or any
Series, or any amendment thereof or any supplement thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, unless
such statement or omission was made in reliance upon information furnished
to the Manager or the Trust or to any affiliated person of the Manager by a
Portfolio Manager Indemnified Person; provided however, that in no case
shall the indemnity in favor of the Portfolio Manager Indemnified Person be
deemed to protect such person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reason
of its reckless disregard of obligations and duties under this Agreement.
(b) Notwithstanding Section 13 of this Agreement, the Portfolio
Manager agrees to indemnify and hold harmless the Manager, any affiliated
person of the Manager, and any controlling person of the Manager (all of
such persons being referred to as "Manager Indemnified Persons") against
<PAGE>
any and all losses, claims, damages, liabilities, or litigation (including
legal and other expenses) to which a Manager Indemnified Person may become
subject under the 1933 Act, 1940 Act, the Advisers Act, under any other
statute, at common law or otherwise, arising out of the Portfolio Manager's
responsibilities as Portfolio Manager of the Series which (1) may be based
upon the Portfolio Manager's willful misfeasance, bad faith, or negligence
in the performance of its duties (which could include a negligent action or
a negligent omission to act), or by reason of the Portfolio Manager's
reckless disregard of its obligations and duties under this Agreement, or
(2) may be based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or prospectus
covering the shares of the Trust or any Series, or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact known or which should have been known to the Portfolio
Manager and was required to be stated therein or necessary to make the
statements therein not misleading, if such a statement or omission was made
in reliance upon information furnished to the Manager, the Trust, or any
affiliated person of the Manager or Trust by the Portfolio Manager or any
affiliated person of the Portfolio Manager; provided, however, that in no
case shall the indemnity in favor of a Manager Indemnified Person be deemed
to protect such person against any liability to which any such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
(c) The Manager shall not be liable under Paragraph (a) of this
Section 14 with respect to any claim made against a Portfolio Manager
Indemnified Person unless such Portfolio Manager Indemnified Person shall
have notified the Manager in writing within a reasonable time after the
summons or other first legal process giving information of the nature of
the claim shall have been served upon such Portfolio Manager Indemnified
Person (or after such Portfolio Manager Indemnified Person shall have
received notice of such service on any designated agent), but failure to
notify the Manager of any such claim shall not relieve the Manager from any
liability which it may have to the Portfolio Manager Indemnified Person
against whom such action is brought except to the extent the Manager is
prejudiced by the failure or delay in giving such notice. In case any such
action is brought against the Portfolio Manager Indemnified Person, the
Manager will be entitled to participate, at its own expense, in the defense
thereof or, after notice to the Portfolio Manager Indemnified Person, to
assume the defense thereof, with counsel satisfactory to the Portfolio
Manager Indemnified Person. If the Manager assumes the defense of any such
action and the selection of counsel by the Manager to represent the Manager
and the Portfolio Manager Indemnified Person would result in a conflict of
interests and therefore, would not, in the reasonable judgment of the
Portfolio Manager Indemnified Person, adequately represent the interests of
the Portfolio Manager Indemnified Person, the Manager will, at its own
expense, assume the defense with counsel to the Manager and, also at its
own expense, with separate counsel to the Portfolio Manager Indemnified
Person, which counsel shall be satisfactory to the Manager and to the
Portfolio Manager Indemnified Person. The Portfolio Manager Indemnified
Person shall bear the fees and expenses of any additional counsel retained
by it, and the Manager shall not be liable to the Portfolio Manager
Indemnified Person under this Agreement for any legal or other expenses
subsequently incurred by the Portfolio Manager Indemnified Person
independently in connection with the defense thereof other than reasonable
costs of investigation. The Manager shall not have the right to compromise
on or settle the litigation without the prior written consent of the
Portfolio Manager Indemnified Person if the compromise or settlement
results, or may result in a finding of wrongdoing on the part of the
Portfolio Manager Indemnified Person.
(d) The Portfolio Manager shall not be liable under Paragraph (b) of
this Section 14 with respect to any claim made against a Manager
Indemnified Person unless such Manager Indemnified Person shall have
notified the Portfolio Manager in writing within a reasonable time after
the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Manager Indemnified Person
(or after such Manager Indemnified Person shall have received notice of
such service on any designated agent), but failure to notify the Portfolio
Manager of any such claim shall not relieve the Portfolio Manager from any
liability which it may have to the Manager Indemnified Person against whom
such action is brought except to the extent the Portfolio Manager is
prejudiced by the failure or delay in giving such notice. In case any such
<PAGE>
action is brought against the Manager Indemnified Person, the Portfolio
Manager will be entitled to participate, at its own expense, in the defense
thereof or, after notice to the Manager Indemnified Person, to assume the
defense thereof, with counsel satisfactory to the Manager Indemnified
Person. If the Portfolio Manager assumes the defense of any such action and
the selection of counsel by the Portfolio Manager to represent both the
Portfolio Manager and the Manager Indemnified Person would result in a
conflict of interests and therefore, would not, in the reasonable judgment
of the Manager Indemnified Person, adequately represent the interests of
the Manager Indemnified Person, the Portfolio Manager will, at its own
expense, assume the defense with counsel to the Portfolio Manager and, also
at its own expense, with separate counsel to the Manager Indemnified
Person, which counsel shall be satisfactory to the Portfolio Manager and to
the Manager Indemnified Person. The Manager Indemnified Person shall bear
the fees and expenses of any additional counsel retained by it, and the
Portfolio Manager shall not be liable to the Manager Indemnified Person
under this Agreement for any legal or other expenses subsequently incurred
by the Manager Indemnified Person independently in connection with the
defense thereof other than reasonable costs of investigation. The Portfolio
Manager shall not have the right to compromise on or settle the litigation
without the prior written consent of the Manager Indemnified Person if the
compromise or settlement results, or may result in a finding of wrongdoing
on the part of the Manager Indemnified Person.
15. Duration and Termination.
(a) This Agreement shall become effective on the date first indicated
above, subject to the condition that the Fund's Board of Trustees,
including a majority of those Trustees who are not interested persons (as
such term is defined in the 1940 Act) of the Manager or the Portfolio
Manager, and the shareholders of each Series, shall have approved this
Agreement. Unless terminated as provided herein, this Agreement shall
remain in full force and effect for two years from such date and continue
on an annual basis thereafter with respect to each Series covered by this
Agreement; provided that such annual continuance is specifically approved
each year by (a) the Board of Trustees of the Fund, or by the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act)
of each Series, and (b) the vote of a majority of those Trustees who are
not parties to this Agreement or interested persons (as such term is
defined in the 1940 Act) of any such party to this Agreement cast in person
at a meeting called for the purpose of voting on such approval. However,
any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 1940 Act) of a Series shall be
effective to continue this Agreement with respect to such Series
notwithstanding (i) that this Agreement has not been approved by the
holders of a majority of the outstanding shares of any other Series or (ii)
that this agreement has not been approved by the vote of a majority of the
outstanding shares of the Fund, unless such approval shall be required by
any other applicable law or otherwise. Notwithstanding the foregoing, this
Agreement may be terminated with respect to any Series covered by this
Agreement: (a) by the Manager at any time, upon sixty (60) days' written
notice to the Portfolio Manager and the Fund, (b) at any time without
<PAGE>
payment of any penalty by the Fund, by the Fund's Board of Trustees or a
majority of the outstanding voting securities of each Series, upon sixty
(60) days' written notice to the Manager and the Portfolio Manager, or (c)
by the Portfolio Manager upon three (3) months written notice unless the
Fund or the Manager requests additional time to find a replacement for the
Portfolio Manager, in which case the Portfolio Manager shall allow the
additional time requested by the Fund or Manager not to exceed three (3)
additional months beyond the initial three-month notice period; provided,
however, that the Portfolio Manager may terminate this Agreement at any
time without penalty, effective upon written notice to the Manager and the
Fund, in the event either the Portfolio Manager (acting in good faith) or
the Manager ceases to be registered as an investment adviser under the
Advisers Act or otherwise becomes legally incapable of providing investment
management services pursuant to its respective contract with the Fund, or
in the event the Manager becomes bankrupt or otherwise incapable of
carrying out its obligations under this Agreement, or in the event that the
Portfolio Manager does not receive compensation for its services from the
Manager or the Fund as required by the terms of this agreement.
In the event of termination for any reason, all records of each Series for
which the Agreement is terminated shall promptly be returned to the Manager or
the Fund, free from any claim or retention of rights in such record by the
Portfolio Manager, although the Portfolio Manager may, at its own expense, make
and retain a copy of such records. This Agreement shall automatically terminate
in the event of its assignment (as such term is described in the 1940 Act). In
the event this Agreement is terminated or is not approved in the manner
described above, the Sections or Paragraphs numbered 2(g), 8, 9, 10, 12, 13 and
14 of this Agreement shall remain in effect, as well as any applicable provision
of this Section numbered 15 and, to the extent that only amounts are owed to the
Portfolio Manager as compensation for services rendered while the agreement was
in effect, Section 6.
(b) Notices.
Any notice must be in writing and shall be sufficiently given (1) when
delivered in person, (2) when dispatched by telegram or electronic facsimile
transfer (confirmed in writing by postage prepaid first class air mail
simultaneously dispatched), (3) when sent by internationally recognized
overnight courier service (with receipt confirmed by such overnight courier
service), or (4) when sent by registered or certified mail, to the other party
at the address of such party set forth below or at such other address as such
party may from time to time specify in writing to the other party.
If to the Fund:
Pilgrim Mutual Funds
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
Attention: James M. Hennessy
If to the Portfolio Manager:
Nicholas-Applegate Capital Management
600 West Broadway
San Diego, CA 92101
Attention: E. Blake Moore
16. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) the holders of a majority of the
outstanding voting securities of the Series, and (ii) the Trustees of the Fund,
including a majority of the Trustees of the Fund who are not interested persons
of any party to this Agreement, cast in person at a meeting called for the
purpose of voting on such approval, if such approval is required by applicable
law.
17. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of
California, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act or rules or orders of the
SEC thereunder, and without regard for the conflicts of laws principle
thereof. The term "affiliate" or "affiliated person" as used in this
Agreement shall mean "affiliated person" as defined in Section 2(a)(3) of
the 1940 Act.
(b) The Manager and the Portfolio Manager acknowledge that the Fund
enjoys the rights of a third-party beneficiary under this Agreement, and
the Manager acknowledges that the Portfolio Manager enjoys the rights of a
third party beneficiary under the Management Agreement.
<PAGE>
(c) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
(d) To the extent permitted under Section 15 of this Agreement, this
Agreement may only be assigned by any party with the prior written consent
of the other parties. (e) If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby, and to this
extent, the provisions of this Agreement shall be deemed to be severable.
(f) Nothing herein shall be construed as constituting the Portfolio
Manager as an agent or co-partner of the Manager, or constituting the
Manager as an agent or co-partner of the Portfolio Manager.
(g) This agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
PILGRIM INVESTMENTS, INC.
By:
-------------------------------------
Title:
------------------------------------
NICHOLAS-APPLEGATE CAPITAL
MANAGEMENT
By:
-------------------------------------
Title:
------------------------------------
<PAGE>
Schedule A
<TABLE>
<CAPTION>
<S> <C>
Series Annual Portfolio Management Fee
- ------ -------------------------------
Pilgrim Small Cap Growth Fund 0.50% of the Series' average net assets
Pilgrim Mid Cap Growth Fund 0.375% of the first $500 million of the Series'
average net assets, 0.3375% of the next $500 million
of average net assets, and 0.325% of the average
net assets in excess of $1 billion
Pilgrim Large Cap Growth Fund 0.375% of the first $500 million of the Series' average
net assets, 0.3375% of the next $500 million of average
net assets, and 0.325% of the average net assets in
excess of $1 billion
Pilgrim Emerging Countries Fund 0.625% of the Series' average net assets Pilgrim
Worldwide Growth Fund 0.50% of the first $500 million of the Series' average
net assets, 0.45% of the next $500 million of average
net assets, and 0.425% of the average net assets in
excess of $1 billion
Pilgrim International Small Cap Growth Fund 0.50% of the first $500 million of the Series' average
net assets, 0.45% of the next $500 million of average
net assets, and 0.425% of the average net assets in
excess of $1 billion
Pilgrim Convertible Fund 0.375% of the first $500 million of the Series'
average net assets, 0.3375% of the next $500 million
of average net assets, and 0.325% of the average net
assets in excess of $1 billion
Pilgrim International Core Growth Fund 0.50% of the first $500 million of the Series' average
net assets, 0.45% of the next $500 million of average
net assets, and 0.425% of the average net assets in
excess of $1 billion
</TABLE>
<PAGE>
PILGRIM INVESTMENTS, INC.
40 NORTH CENTRAL AVENUE, SUITE 1200
PHOENIX, ARIZONA 85004-4424
Nicholas-Applegate Capital Management
600 West Broadway
San Diego, California 92101
Ladies and Gentlemen:
Reference is hereby made to Section 2(a) of the Portfolio Management
Agreement dated as of ______________, 1999 between you and us in respect of
Pilgrim Mutual Funds which provides that in carrying out your duties under such
Agreement you will comply with our portfolio manager operating policies and
procedures in effect on the date of such Agreement. Attached hereto as Annex I
is a list of such policies and procedures. Please sign below to acknowledge your
receipt and acceptance of these policies and procedures.
Very truly yours,
PILGRIM INVESTMENTS, INC.
By:
------------------------------------
Acknowledged and Agreed:
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
By:
--------------------------------
<PAGE>
Annex I
Portfolio Manager Operating Policies and Procedures
In carrying its duties under the Portfolio Management Agreement, the
Portfolio Manager will comply with the following policies and procedures
(capitalized terms used herein shall have the meaning given such terms in the
Portfolio Management Agreement):
(a) The Portfolio Manager will manage each Series so that it meets the
income and asset diversification requirements of Section 851 of the
Internal Revenue Code.
(b) The Portfolio Manager will vote all proxies solicited by or with
respect to the issuers of securities which assets of the Series are
invested consistent with any procedures or guidelines promulgated by the
Board or the Manager, or if none, in the discretion of the Portfolio
Manager based upon the best interests of the Series. The Portfolio Manager
will maintain appropriate records detailing its voting of proxies on behalf
of the Fund and will provide to the Fund at least quarterly a report
setting forth the proposals voted on and how the Series' shares were voted
since the prior report, including the name of the corresponding issuers.
(c) In connection with the purchase and sale of securities for each
Series, the Portfolio Manager will arrange for the transmission to the
custodian and portfolio accounting agent for the Series on a daily basis,
such confirmation, trade tickets, and other documents and information,
including, but not limited to, Cusip, Sedol, or other numbers that identify
securities to be purchased or sold on behalf of the Series, as may be
reasonably necessary to enable the custodian and portfolio accounting agent
to perform its administrative and recordkeeping responsibilities with
respect to the Series. With respect to portfolio securities to be settled
through the Depository Trust Company, the Portfolio Manager will arrange
for the prompt transmission of the confirmation of such trades to the
Fund's custodian and portfolio accounting agent.
(d) The Portfolio Manager will assist the custodian and portfolio
accounting agent for the Fund in determining or confirming, consistent with
the procedures and policies stated in the Registration Statement for the
Fund or adopted by the Board of Trustees, the value of any portfolio
securities or other assets of the Series for which the custodian and
portfolio accounting agent seeks assistance from or identifies for review
by the Portfolio Manager. The parties acknowledge that the Portfolio
Manager is not a custodian of the Series' assets and will not take
possession or custody of such assets.
(e) The Portfolio Manager will provide the Manager, no later than the
20th day following the end of each of the first three fiscal quarters of
each Series and the 45th day following the end of each Series' fiscal year,
a letter to shareholders (to be subject to review and editing by the
Manager) containing a discussion of those factors referred to in Item 5(a)
of 1940 Act Form N-1A in respect of both the prior quarter and the fiscal
year to date.
(f) The Portfolio Manager will complete and deliver to the Manager a
written compliance checklist in a form provided by the Manager for each
month by the 10th day of the following month.
(g) The parties agree that in the event that the Manager or an
affiliated person of the Manager sends sales literature or other
promotional material to the Portfolio Manager for its approval and the
Portfolio Manager has not commented within 10 days, the Manager and its
affiliated persons may use and distribute such sales literature or other
promotional material.
<PAGE>
APPENDIX J
Advisory Fees
The annual advisory fees under the New Agreements for each Fund, expressed
as a percentage of the Fund's average daily net assets, are as follows:
Fund Annual Investment Advisory Fee
MagnaCap Fund 1.00% of the first $30 million of the Fund's
average net assets; 0.75% of the next $220
million of average net assets; 0.625% of the next
$250 million of average net assets; and 0.50% of
the average net assets over $500 million
High Yield Fund 0.60% of the Fund's average net assets
Bank and Thrift Fund 1.00% of the first $30 million of the Fund's
average net assets; 0.75% of the next $95 million
of average daily net assets; and 0.70% of average
daily net assets in excess of $125 million.
Government Securities 0.50% of the first $500 million of the Fund's
Income Fund average net assets; 0.45% of the next Fund $500
million of average daily net assets and 0.40%
on net average daily net assets in excess of
$1 billion.
Asia-Pacific Equity Fund 1.25% of the Fund's average net assets
LargeCap Leaders Fund 1.00% of the Fund's average net assets
MidCap Value Fund 1.00% of the Fund's average net assets
Prime Rate Trust 0.80% of the Trust's average net assets plus the
proceeds of any outstanding borrowings.
SmallCap Growth Fund 1.00% of the Fund's average net assets
MidCap Growth Fund 0.75% of the first $500 million of the Fund's
average net assets, 0.675% of the next $500
million of average net assets, and 0.65% of
the average net assets in excess of $1 billion
LargeCap Growth Fund 0.75% of the first $500 million of
the Fund's average net assets, 0.675% of the next
$500 million of average net assets, and 0.65% of
the average net assets in excess of $1 billion
High Yield Fund II 0.60% of the Fund's average net assets
Convertible Fund 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the next
$500 million of average net assets, and 0.65% of
the average net assets in excess of $1 billion
Balanced Fund 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the next
$500 million of average net assets, and 0.65% of
the average net assets in excess of $1 billion
Strategic Income Fund 0.45% of the first $500 million of the Fund's
average net assets, 0.40% of the next $250
million of average net assets, and 0.35% of the
average net assets in excess of $750 million
Emerging Countries Fund 1.25% of the Fund's average net assets
Worldwide Growth Fund 1.00% of the first $500 million of the Fund's
average net assets, 0.90% of the next $500
million of average net assets, and 0.85% of the
average net assets in excess of $1 billion
International SmallCap 1.00% of the first $500 million of the Fund's
Growth Fund average net assets, 0.90% of the next $500
million of average net assets, and 0.85% of the
average net assets in excess of $1 billion
<PAGE>
International Core 1.00% of the first $500 million of the Fund's
Growth Fund average net assets, 0.90% of the next $500
million of average net assets, and 0.85% of the
average net assets in excess of $1 billion
Money Market 0.50% of average net assets if Fund has not
invested substantially all of its assets Fund
in another investment company, 0.00% if
substantially all of its assets are invested
in another investment company
- -----------------------
* Pursuant to the terms of the New Agreement for Government Securities Income
Fund, Pilgrim Investments will reimburse the Government Securities Income
Fund to the extent that the gross operating costs and expenses, excluding
any interest, taxes, brokerage commissions, amortization of organizational
expenses, extraordinary expenses, and distribution (Rule 12b-1) fees on
Class B and Class M shares in excess of an annual rate of .25% of the
average daily net assets of these classes, exceed 1.50% of its average
daily net asset value for the first $40 million of net assets and 1.00% of
average daily net assets in excess of $40 million for any one fiscal year.
This reimbursement policy cannot be changed unless the New Agreement is
amended, which would require shareholder approval.
<PAGE>
APPENDIX K
Directors and Principal Executive Officers of Pilgrim Investments
Set forth below is the name and principal occupation of the principal
executive officer and each director of Pilgrim Investments, Inc. The business
address of each such person is 40 North Central Avenue, Suite 1200, Phoenix,
Arizona 85004.
<TABLE>
<CAPTION>
<S> <C> <C>
Position with Pilgrim
Name and Age Investments Principal Occupation during the Last Five Years
- ------------ --------------------- -----------------------------------------------
Robert W. Chairman of the Board Chairman, Chief Executive Office and President of Pilgrim Group, Inc.
Stallings (50) of Directors (since December 1994); Director, Pilgrim Securities, Inc. (since
December 1994); Chairman, Chief Executive Officer and President of
Pilgrim Bank and Thrift Fund, Inc., Pilgrim Government Securities
Income Fund, Inc., Pilgrim Advisory Funds, Inc., and Pilgrim Investment
Funds, Inc. (since April 1995) and Pilgrim Mutual Funds (since May 1999).
Chairman and Chief Executive Officer of Pilgrim Prime Rate Trust (since
April 1995). Chairman and Chief Executive Officer of Pilgrim Capital
Corporation (since August 1990). Presently serves or has served as
an officer or director of other affiliates of Pilgrim Capital Corporation.
James R. Reis Director, Vice Director, Vice Chairman (since December 1994); Executive Vice
(41) Chairman, Executive President (since April 1995) and Director of Structured
Vice President and Finance (since April 1998), Pilgrim Group, Inc.; Director (since
Director of Structured December 1994) and Vice Chairman (since November 1995) of
Finance Pilgrim Securities; Executive Vice President, Assistant Secretary
and Chief Credit Officer of Pilgrim Prime Rate Trust; Executive
Vice President and Assistant Secretary of each of the other Pilgrim
Funds. Chief Financial Officer (since December 1993), Vice Chairman
and Assistant Secretary (since April 1993) and former President
(May 1991 December 1993), Pilgrim Capital Corporation. Presently
serves or has served as an officer or director of other affiliates
of Pilgrim Capital Corporation.
Stanley D. Vyner President and Chief Executive Vice President of most of the Pilgrim Funds (since July
(49) Executive Officer 1996). Formerly Chief Executive Officer (November 1993 - December
1995) HSBC Asset Management Americas, Inc., and Chief Executive
Officer, and Actuary (May 1986 - October 1993) HSBC Life
Assurance Co.
James M. Hennessy Executive Vice Executive Vice President and Secretary (since April 1998), Pilgrim
(50) President and Capital, Pilgrim Group and Pilgrim Securities; Executive Vice
Secretary President and Secretary of each of the other Pilgrim Funds. Formerly
Senior Vice President, Pilgrim Capital (April 1995 - April 1998);
Senior Vice President, Express America Mortgage Corporation (June
1992 - August 1994) and President, Beverly Hills Securities Corp.
(January 1990 - June 1992). Presently serves or has served as
an officer or director of other affiliates of Pilgrim Capital
Corporation.
</TABLE>
<PAGE>
APPENDIX L
Fees Paid to Pilgrim Investments
For each Fund that is a series of Pilgrim Mutual Funds, Pilgrim Investments
became investment adviser to the Fund on May 24, 1999. For the period from May
24, 1999 through June 30, 1999, the aggregate advisory fees paid by each Fund to
Pilgrim Investments was: Balanced Fund -- $30,774; Convertible Fund -- $203,808;
Emerging Countries Fund -- $233,889; High Yield Fund II -- $54,304;
International Core Growth Fund -- $49,617; International SmallCap Growth Fund --
$116,699; LargeCap Growth Fund -- $66,437; MidCap Growth Fund -- $216,282; Money
Market Fund -- $0; SmallCap Growth Fund -- $317,266; Strategic Income Fund --
$9,028; and Worldwide Growth Fund -- $221,635.
The aggregate amount of the advisory fee paid by the each of the following
Funds to Pilgrim Investments for the fiscal year ended June 30, 1999 was:
Asia-Pacific Equity Fund -- $303,883; Bank and Thrift Fund -- $5,892,331;
Government Securities Income Fund -- $190,385; High Yield Fund -- $2,176,297;
LargeCap Leaders Fund -- $300,476; MagnaCap Fund -- $3,201,210; and MidCap Value
Fund -- $670,848. For the fiscal year ended February 28, 1999, Pilgrim Prime
Rate Trust paid an aggregate advisory fee to Pilgrim Investments of $11,973,819.
Fees Paid to Pilgrim Group, Inc.
For the fiscal year ended June 30, 1999, the Funds (except for Pilgrim
Prime Rate Trust) paid shareholder servicing fees in the following amounts to
Pilgrim Group, Inc., which is an affiliate of Pilgrim Investments: Asia-Pacific
Equity Fund -- $11,438; Balanced Fund -- $867; Bank and Thrift Fund --
$82,992; Convertible Fund -- $1,866; Emerging Countries Fund -- $1,353;
Government Securities Income Fund -- $2,822; High Yield Fund -- $20,698; High
Yield Fund II -- $349; International Core Growth Fund -- $968;
International SmallCap Growth Fund -- $1,236; LargeCap Growth Fund -- $1,508;
LargeCap Leaders Fund -- $4,818; MagnaCap Fund -- $42,803; MidCap Growth Fund
- -- $1,879; MidCap Value Fund -- $10,004; Money Market Fund -- $4; SmallCap
Growth Fund -- $1,727; Strategic Income Fund -- $576; and Worldwide Growth
Fund -- $1,590.
For the fiscal year ended February 28, 1999, Pilgrim Prime Rate Trust paid
administrative fees to Pilgrim Group, Inc. of $2,022,051.
Fees Paid to Pilgrim Securities, Inc.
For the fiscal year ended June 30, 1999, the Funds (except Pilgrim Prime
Rate Trust) paid the following service and distribution fees to Pilgrim
Securities, Inc., which is also an affiliate of Pilgrim Investments:
Asia-Pacific Equity Fund -- $107,557; Balanced Fund -- $28,585; Bank and Thrift
Fund -- $3,174,988; Convertible Fund -- $155,480; Emerging Countries Fund --
$71,011; Government Securities Income Fund -- $126,510; High Yield Fund --
$1,581,724; High Yield Fund II -- $40,483; International Core Growth Fund --
$22,950; International SmallCap Growth Fund -- $46,116; LargeCap Growth Fund --
$36,684; LargeCap Leaders Fund -- $144,249; MagnaCap Fund -- $1,621,958; MidCap
Growth Fund -- $191,893; MidCap Value Fund -- $339,717; Money Market Fund -- $0;
SmallCap Growth Fund -- $205,320; Strategic Income Fund -- $9,904; and Worldwide
Growth Fund -- $148,522.
<PAGE>
APPENDIX M
The annual sub-advisory fees for the Sub-Advised Funds, expressed as
percentages of the value of the average daily net assets of the Fund, are as
follows:
Sub-Adviser Fund Rate
- ----------- ---- -----
<TABLE>
<CAPTION>
<S> <C> <C>
HSBC Asset Management Americas, Asia-Pacific Equity Fund 0.50% of the Fund's average net assets
Inc., and HSBC Asset Management
Hong Kong, Limited
Nicholas-Applegate Capital SmallCap Growth Fund 0.50% of the Fund's average net assets
Management
MidCap Growth Fund
0.375% of the first $500 million of the
Fund's average net assets, 0.3375% of
the next $500 million of average net
assets, and 0.325% of the average net assets
in excess of $1 billion
LargeCap Growth Fund 0.375% of the first $500 million of the Fund's
average net assets, 0.3375% of the next $500
million of average net assets, and 0.325%
of the average net assets in excess of $1 billion
Convertible Fund 0.375% of the first $500 million of the Fund's
average net assets, 0.3375% of the next $500
million of net assets, and 0.325% of the average
net assets in excess of $1 billion
Emerging Countries Fund 0.625% of the Fund's average net assets
Worldwide Growth Fund 0.50% of the first $500 million of the Fund's
average net assets, 0.45% of the next $500
million of average net assets, and 0.425%
of the average net assets in excess
of $1 billion
International SmallCap Growth 0.50% of the first $500 million of the
Fund Fund's average net assets, 0.45% of the
next $500 million of average net assets,
and 0.425% of the average net assets in
excess of $1 billion
International Core Growth Fund 0.50% of the first $500 million of the
Fund's average net assets, 0.45% of
the next $500 million of average net
assets, and 0.425% of the average net
assets in excess of $1 billion
</TABLE>
<PAGE>
APPENDIX N
As of July 29, 1999, to the knowledge of the Funds, no person owned
beneficially more than 5% of the outstanding shares of any class of the Funds,
except as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number Percentage of
Fund Class Name and Address of Shares Class
- ---- ----- ---------------- --------- ------------
Asia-Pacific Class A ContiInvestments LLC 135,773 7.59%
Equity C/O Continential Grain Co
Attn: Mary Greenebaum
277 Park Ave
New York, NY 10172
MidCap Value Class C Prudential Securities Inc FBO 337 7.84%
Rebecca Morrow Tr
Cindy A Raisch 1993 Trust
1522 Beech St
S Pasadena, CA 91030
Prudential Securities Inc FBO 673 15.65%
Jerome M Garden Tr Psp & Trust
150 E Huron St Suite 910
Chicago, IL 60611
Prudential Securities Inc FBO 336 7.81%
Jerold L Edwards IRA R/O
17502 Jones St
Omaha, NE 68118
Prudential Securities Inc FBO 404 9.41%
Mr. Kirk A McElroy
11721 S Hamlin
Garden Homes, IL 60803
Prudential Securities Inc FBO 238 5.53%
Helen Adler Rosenberg
4075 W Jarvis Ave
Lincolnwood, IL 60646
Prudential Securities Inc FBO 667 15.51%
Mr. Michael D Fox
2893 Idlewood Lane
High Yield Class C PaineWebnber FBO 14,992 7.79%
Richard W Gartman
PO Box 3321
Weehawken, NJ 07087
Prudential Securities Inc FBO 10,136 5.26%
Barbara C Progar
18351 Kuykendahl Rd #289
Spring, TX 77379
<PAGE>
Number Percentage of
Fund Class Name and Address of Shares Class
- ---- ----- ---------------- --------- ------------
Government Class A Red Lake County Court House 112,253 6.54%
Securities Income Attn: Jay Gilemette
Red Lake Falls, MN 56750
Class C Prudential Securities Inc. FBO 35,763 98.46%
American National Bank & Trust Co
as Trustee for Lincoln Group LP
Northbrook, IL 60062
Class M George E Leslie & Florence E 3,858 6.77%
Leslie Family Trust
PO Box 70400
Pasadena, CA 91117
Carol A McArthur 5,948 10.43%
Separate Property
395 Sawdust Rd Suite 2153
The Woodlands, TX 77380
Doris J Lubell 4,380 7.68%
200 E 94th St Apt 1411
New York, NY 10128
Int'l SmallCap Class Q Capinco 111,813 6.04%
Growth C/O Firstar Bank East
PO Box 1787
Milwaukee, WI 53201
Convertible Class Q Trust Company of America 44,306 5.45%
FBO TCA
7103 S Revere Pkwy
Englewood, CO 80112
Elaine V Knauss Revocable Trust 108,339 13.32%
PO Box 1108
Carefree, AZ 85377
Knauss Family Partnership 44,799 5.51%
PO Box 2173
Carefree, AZ 85377
Dalton L Knauss Revocable Trust 108,626 13.36%
PO Box 2173
Carefree, AZ 85377
Worldwide Growth Class A Blush & Co. 166,578 5.63%
PO Box 976
New York, NY 10268
Strategic Income Class A CNA Trust Corp Trustee 19,088 7.73%
FBO Dalby Wendland & Co. PC
PO Box 5024
Costa Mesa, CA 92628-5024
Eastern Bank and Trust 28,702 11.63%
FBO Munksjo Paper 401K
217 Essex Street
Salem, MA 01970-3792
<PAGE>
Number Percentage of
Fund Class Name and Address of Shares Class
- ---- ----- ---------------- --------- ------------
MidCap Growth Class Q Clark & Co 249,539 35.41%
FBO Swedish American Hospital
403B AGGR
]PO Box 39
Westerville, OH 43086-0039
Clark & Co 133,651 18.97%
FBO Swedish American Hospital
401K Aggr Growth
]PO Box 39
Westerville, OH 43086-0039
Donald A Pels 118,643 16.84%
375 Park Ave Suite 3305
New York, NY 10152
High Yield II Class A PaineWebber for the Benefit of Pulix Super 92,851 6.12%
Markets Charities Inc.
PO Box 32018
Lakeland, FL 33802-2018
PaineWebber for the Benefit of Pulix 187,776 12.38%
Supermarkets Inc. Profit Sharing Plan and
Trust
PO Box 407
Lakeland, FL 33802-0407
Class C New Life Corp of America FBO 92,203 5.68%
Norvell L Olive President
PO Box 906
Hendersonville, TN 37077
Int'l Core Growth Class A PaineWebber for the Benefit of Thomas R Sloan 57,353 9.59%
705 Sunset Drive
Greensboro, NC 27408
Class C PaineWebber for the Benefit of Arnold I 55,633 9.10%
Richman - Int'l Acct.
218 N Charles St Suite 500
Baltimore, MD 21201
SmallCap Growth Class Q Suntrust Bank Central FL NA Trustee 75,715 21.45%
FBO Akerman Senterfitt & Edison PA
Cash or Deferred PS PL & Trust
c/o/ Fascorp Record Keeper
8515 E. Orchard Rd., Suite 212
Englewood, CO 80111-5002
Suntrust Bank Central FL NA Trustee 58,658 16.62%
FBO Hubbard Construction Co EMP PSP and 401K
Plan
c/o/ Fascorp Record Keeper
8515 E. Orchard Road
Englewood, CO 80111-5002
Susan S Rand 41,630 11.79%
PO Box 452
Salisbury, CT 06068
LargeCap Growth Class A Carn & Co. 93,144 7.33%
Catawba Rental Co.
Retirement Savings Plan
PO Box 96211
Washington, D.C. 20090-6211
<PAGE>
Number Percentage of
Fund Class Name and Address of Shares Class
- ---- ----- ---------------- --------- ------------
Money Market Class B First Clearing Corporation 98,658 6.67%
Leslie W Six IRA
134 Rosemary Place
Chula Vista, CA 91910
Everen Securities, Inc. 118,550 8.01%
Helen M Janis
111 East Kilbourn Avenue
Milwaukee, WI 53202
George S Ormsby & Wilma M Ormsby 293,690 19.84%
4434 Wigton
Houston, TX 77096
Murray J Goulas & Vada J Goulas 153,866 10.40%
21514 Santa Clara Dr
Katy, TX 77450
Class C Prudential Securities, Inc. FBO 166,606 36.02%
Leanne, Felix, & Sandra Widlacki
15178 Grand View Dr
Orland Park, IL 60467
</TABLE>
<PAGE>
APPENDIX O
The following persons currently are principal executive officers of each of
the Companies:
<TABLE>
<CAPTION>
<S> <C> <C>
Position with the
Name and Age Companies Principal Occupation for the Last Five Years
- ------------ ------------------ --------------------------------------------
Robert W. Stallings (50) Chairman, Chief Executive Chairman, Chief Executive Office and President of Pilgrim
Officer and President Group, Inc. (since December 1994); Director, Pilgrim
Securities, Inc. (since December 1994); Chairman, Chief
Executive Office and President of Pilgrim Bank and Thrift
Fund, Inc., Pilgrim Government Securities Income Fund, Inc.,
Pilgrim Advisory Funds, Inc., and Pilgrim Investment Funds,
Inc. (since April 1995) and Pilgrim Mutual Funds (since May
1999). Chairman and Chief Executive Officer of Pilgrim Prime
Rate Trust (since April 1995). Chairman and Chief Executive
Officer of Pilgrim Capital Corporation (since August 1990).
Presently serves or has served as an officer or director of
other affiliates of Pilgrim Capital Corporation.
James R. Reis (41) Executive Vice President Director, Vice Chairman (since December 1994), Executive Vice
and Assistant Secretary President (since April 1995), and Director of Structured
Finance (since April 1998), Pilgrim Group, Inc. and Pilgrim
Investments; Director (since December 1994) and Vice Chairman
(since November 1995) of Pilgrim Securities; Executive
Vice President, Assistant Secretary and Chief Credit Officer of
Pilgrim Prime Rate Trust; Executive Vice President and
Asistant Secretary of each of the other Pilgrim Funds.
Chief Financial Officer (since December 1993), Vice Chairman
and Assistant Secretary (since April 1993) and former
President (May 1991 - December 1993), Pilgrim Capital.
Presently serves or has served as an officer or director of
other affiliates of Pilgrim Capital.
Stanley D. Vyner (49) Executive Vice President President and Chief Executive Officer (since August 1996),
Pilgrim Investments; Executive Vice President of most of the
other Pilgrim Funds (since July 1996). Formerly Chief
Executive Officer (November 1993 - December 1995) HSBC Asset
Management Americas, Inc., and Chief Executive Officer, and
Actuary (May 1986 - October 1993) HSBC Life Assurance Co.
<PAGE>
Position with the
Name and Age Companies Principal Occupation for the Last Five Years
- ------------ ------------------ --------------------------------------------
James M. Hennessy (50) Executive Vice President Executive Vice President and Secretary (since April 1998),
and Secretary Pilgrim Capital, Pilgrim Group, Pilgrim Securities and
Pilgrim Investments; Executive Vice President and
Secretary of each of the other Pilgrim Funds. Formerly
Senior Vice President, Pilgrim Capital, Pilgrim Group,
Pilgrim Securities and Pilgrim Investments (April 1995 -
April 1998); Senior Vice President, Express America
Mortgage Corporation (June 1992 - August 1994) and President,
Beverly Hills Securities Corp. (January 1990 - June 1992).
Presently serves or has served as an officer or
director of other affiliates of Pilgrim Capital Corporation.
Michael J. Roland (41) Senior Vice President and Senior Vice President, Treasurer and Chief Financial Officer,
Principal Financial Pilgrim Group, Pilgrim Investments and Pilgrim Securities
Officer (since June 1998); Senior Vice President and Principal
Financial Officer of each of the other Pilgrim Funds. He
served in same capacity from April, 1995 - April, 1997.
Formerly, Chief Financial Officer of Endeavor Group (April,
1997 to June, 1998).
Robert S. Naka (36) Vice President and Vice President, Pilgrim Investments (since April 1997) and
Assistant Secretary Pilgrim Group, Inc. (since February 1997). Vice President
and Assistant Secretary of each of the other Pilgrim Funds.
Formerly Assistant Vice President, Pilgrim Group, Inc.
(August 1995 - February 1997). Formerly Operations Manager,
Pilgrim Group, Inc. (April 1992 - April 1995).
Robyn L. Ichilov (31) Vice President and Vice President, Pilgrim Investments (since August 1997),
Treasurer Accounting Manager (since November 1995). Vice President
and Treasurer of most of the other Pilgrim Funds. Formerly
Assistant Vice President and Accounting (June 1993 - April 1995).
<PAGE>
In addition, the following individuals serve as officers for the indicated
Company:
Position with the
Name and Age Companies Principal Occupation for the Last Five Years
- ------------ ----------------- --------------------------------------------
Pilgrim Advisory Funds,
Inc.
G. David Underwood (50) Vice President and Vice President, Pilgrim Investments (since December 1996).
Portfolio Manager Formerly Director of Funds Management, First Interstate
Capital Management (January 1995 - November 1996);
Vice President, Director of Research and Manager of
Investment Products, Integra Trust Company (1993 -
January 1995).
Pilgrim Bank and Thrift Fund, Inc.
Carl Dorf (58) Senior Vice President and Senior Vice President (since February 1997), Pilgrim
Senior Portfolio Manager Investments, Inc. Formerly Vice President, Pilgrim
Investments, Inc. (August 1995 - February 1997). Formerly
Vice President, Pilgrim Bank and Thrift Fund, Inc. (January
1996 - May 1997). Formerly Vice President, Pilgrim
Management Corporation (January 1991 - April 1995).
Pilgrim Government Securities Income Fund, Inc.
Charles G. Ullerich (34) Vice President and Vice President, Pilgrim Investments (since February 1998).
Portfolio Manager Formerly Assistant Portfolio Manager of Pilgrim Government
Securities Income Fund, Inc. (August 1995 - September 1996)
and Vice President, First Liberty Bank (April 1991 - August
1995).
Pilgrim Investment Funds, Inc.
Howard N. Kornblue (57) Senior Vice President and Senior Vice President, Pilgrim Investments (since August
Senior Portfolio Manager 1995). Formerly Senior Vice President, Pilgrim Group, Inc.
(November 1986 - April 1995).
Kevin G. Mathews (40) Senior Vice President and Senior Vice President, Pilgrim Investments (since July
Senior Portfolio Manager 1998). Formerly Vice President, Pilgrim Investments (August
1995 - July 1998); Vice President, Van Kampen America Capital
(May 1987 - April 1995).
<PAGE>
Position with the
Name and Age Companies Principal Occupation for the Last Five Years
- ------------ ----------------- --------------------------------------------
Pilgrim Mutual Funds
Kevin G. Mathews (40) Senior Vice President and See description above.
Senior Portfolio Manager
G. David Underwood (50) Vice President and Senior See description above.
Portfolio Manager
Robert K. Kinsey (41) Vice President and Vice President, Pilgrim Investments (since March 1999).
Portfolio Manager Formerly Vice President and Fixed Income Portfolio Manager,
Federated Investors (January 1995 - March 1999); Principal
and Portfolio Manager, Harris Investment Management (July
1992 - January 1995).
Pilgrim Prime Rate Trust
Howard Tiffen (51) President, Chief Senior Vice President (since November 1995), Pilgrim
Operating Officer, and Investments. Formerly Managing Director of various divisions
Senior Portfolio Manager of Bank of America (and its predecessor, Continental Bank)
(1982-1995).
Daniel A. Norman (41) Senior Vice President, Senior Vice President, Pilgrim Investments (since December
Treasurer, and Assistant 1994); Senior Vice President, Pilgrim Securities (since
Portfolio Manager November 1995). Formerly an officer of other affiliates of
Pilgrim Capital.
</TABLE>
