SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
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)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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 previously 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 Filed:
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PILGRIM PRIME RATE TRUST
40 NORTH CENTRAL AVENUE, SUITE 1200
PHOENIX, ARIZONA 85004
(800) 992-0180
June ___, 2000
Dear Shareholder:
ReliaStar Financial Corp., the indirect parent company of Pilgrim
Investments, Inc., the investment adviser to the Trust, is being acquired by the
financial services firm ING Groep N.V. Headquartered in Amsterdam, ING is a
global financial institution active in the fields of insurance, banking, and
asset management.
At the shareholder meeting on August 25, 2000, you will be asked to approve
a new advisory contract to take effect after the acquisition. If approved,
Pilgrim Investments will continue to manage the Trust following the transaction.
Except for the date, this new contract is the same as the one currently in
effect. Approval of the new advisory contract is sought so that management of
the Trust can continue uninterrupted after the transaction, because the current
agreement may terminate automatically as a result of the transaction.
At the shareholder meeting, you also will be asked to approve amendments
that would authorize the Trust to issue a preferred class of shares. As a result
of borrowing over the past four years, the Trust has been able to enhance the
income paid to shareholders, and the Trust believes that the issuance of
preferred shares presents a more efficient and potentially lower cost means of
leveraging that could further enhance the income paid to shareholders. Your
approval is sought on proposed amendments to the Trust's Declaration of Trust,
fundamental investment policies and advisory contract so that the Trust can
issue preferred shares when it is advantageous to do so.
At the shareholder meeting, you also will be asked to elect new Trustees
and ratify the independent auditors.
After careful consideration, the Board of Trustees 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 NO LATER THAN AUGUST 24, 2000.
The Trust is using Shareholder Communications Corporation ("SCC"), 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 SCC 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
Chief Executive Officer and President
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PILGRIM PRIME RATE TRUST
40 NORTH CENTRAL AVENUE, SUITE 1200
PHOENIX, ARIZONA 85004
(800) 992-0180
Notice of Annual Meeting of Shareholders of
Pilgrim Prime Rate Trust
to be Held on August 25, 2000
To the Shareholders:
An Annual Meeting of Shareholders of Pilgrim Prime Rate Trust (the "Trust")
will be held on August 25, 2000 at ____ a.m., local time, at the offices of the
Trust, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004 for the
following purposes:
1. To elect eleven trustees ("Trustees") to serve until their successors
are elected and qualified;
2. To approve the following amendments in connection with the Trust's
ability to issue a preferred class of shares:
a. To approve amendments to the Trust's Agreement and Declaration of
Trust;
b. To approve amendments to the Trust's fundamental investment
policies;
c. To approve amendments to the Investment Management Agreement
between the Trust and Pilgrim Investments, Inc. ("Pilgrim
Investments");
3. To approve a new Investment Management Agreement between the Trust and
Pilgrim Investments to reflect the acquisition of Pilgrim Investments
by ING Groep N.V. ("ING"), with no change in the advisory fees payable
to Pilgrim Investments;
4. To ratify the appointment of KPMG LLP as independent auditors for the
Trust for the fiscal year ending February 28, 2001; and
5. To transact such other business as may properly come before the Annual
Meeting of Shareholders or any adjournments thereof.
Shareholders of record at the close of business on June 19, 2000 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 Trustees,
JAMES M. HENNESSY, Secretary
June ___, 2000
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PILGRIM PRIME RATE TRUST
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS OF PILGRIM PRIME RATE TRUST
TO BE HELD ON AUGUST 25, 2000
This Proxy Statement is being furnished by the Board of Trustees of Pilgrim
Prime Rate Trust (the "Trust") in connection with the Trust's solicitation of
votes regarding matters to be addressed at the Annual Meeting of Shareholders of
the Trust to be held on August 25, 2000 at ____ a.m., local time, at the offices
of the Trust, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004 for
the purposes set forth below and in the accompanying Notice of Annual Meeting.
At the Meeting, the shareholders of the Trust will be asked:
1. To elect eleven trustees ("Trustees") to serve until their successors
are elected and qualified (Proposal 1);
2. To approve the following amendments in connection with the Trust's
ability to issue a preferred class of shares:
a. To approve amendments to the Trust's Agreement and Declaration of
Trust (Proposal 2a);
b. To approve amendments to the Trust's fundamental investment
policies (Proposal 2b);
c. To approve amendments to the Investment Management Agreement
between the Trust and Pilgrim Investments, Inc. ("Pilgrim
Investments") (Proposal 2c);
3. To approve a new Investment Management Agreement between the Trust and
Pilgrim Investments to reflect the acquisition of Pilgrim Investments
by ING Groep N.V. ("ING"), with no change in the advisory fees payable
to Pilgrim Investments (Proposal 3);
4. To ratify the appointment of KPMG LLP as independent auditors for the
Trust for the fiscal year ending February 28, 2001 (Proposal 4); and
5. To transact such other business as may properly come before the Annual
Meeting of Shareholders or any adjournments thereof.
The date of the first mailing of this Proxy Statement is expected to be on
or about June ___, 2000.
PROPOSAL NO. 1
ELECTION OF TRUSTEES
The Board of Trustees has nominated eleven individuals (the "Nominees") for
election to the Board. Shareholders are being asked to elect the Nominees to
serve as Trustees, each to serve until his successor is duly elected and
qualified. Pertinent information about each Nominee is set forth below. Each
Nominee has consented to serve as a Trustee if elected. All of the Nominees
currently are Trustees of the Trust. In evaluating the Nominees, the Trustees
took into account their background and experience, including their familiarity
with the issues relating to the Trust and its types of investments as well as
their careers in business, finance, marketing and other areas.
Mark L. Lipson, a Trustee of the Trust, is not standing for election as a
Trustee of the Trust.
INFORMATION REGARDING NOMINEES
Below are the names, ages, business experience during the past five years
and other directorships of the Nominees (as furnished to the Trust).
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<TABLE>
<CAPTION>
Year First Became
Name and Age Principal Occupation for the Last Five Years a Board Member
------------ -------------------------------------------- --------------
<S> <C> <C>
Al Burton President of Al Burton Productions for more than the 1986
(Age 72) last five years. Mr. Burton is also a Director, Trustee
or a member of the Advisory Board of each of the funds
managed by Pilgrim Investments.
Paul S. Doherty President of Doherty, Wallace, Pillsbury and Murphy, 1999
(Age 66) P.C., Attorneys. Formerly a Director of Tambrands, Inc.
(1993 - 1998). Mr. Doherty is also a Director or
Trustee of each of the funds managed by Pilgrim
Investments.
Robert B. Goode Retired. Mr. Goode was formerly Chairman, American 1999
(Age 69) Direct Business Insurance Agency, Inc. (1996 - 2000).
Mr. Goode is also a Director or Trustee of each of the
funds managed by Pilgrim Investments.
Alan L. Gosule* Partner and Chairman of the Tax Department of Clifford 1999
(Age 59) Chance, Rogers & Wells LLP (since 1991). Mr. Gosule is
a Director of F.L. Putnam Investment Management Co.,
Inc, Simpson Housing Limited Partnership, Home
Properties of New York, Inc., CORE Cap, Inc. and
Colonnade Partners. Mr. Gosule is also a Director or
Trustee of each of the funds managed by Pilgrim
Investments.
Walter H. May Retired. Mr. May was formerly Managing Director and 1999
(Age 63) Director of Marketing for Piper Jaffray, Inc.. Mr. May
is also a Director or Trustee of each of the funds
managed by Pilgrim Investments.
Jock Patton Private Investor. Director of Hypercom Corporation 1995
(Age 54) (since January 1999), and JDA Software Group, Inc.
(since January 1999). Mr. Patton is also a Director of
Buick of Scottsdale, Inc., National Airlines, Inc., BG
Associates, Inc., BK Entertainment, Inc., Arizona
Rotorcraft, Inc. and Director and Chief Executive
Officer of Rainbow Multimedia Group, Inc. Mr. Patton
was formerly Director of Stuart Entertainment, Inc.,
Director of Artisoft, Inc. (August 1994 - July 1998)
and a President and Co-owner of StockVal, Inc. (April
1993 - June 1997). Mr. Patton is also a Director,
Trustee, or a member of the Advisory Board of each of
the funds managed by Pilgrim Investments.
David W.C. Putnam President, Clerk and Director of F.L. Putnam Securities 1999
(Age 60) Company, Inc. and its affiliates (since 1978). Mr.
Putnam is Director of Anchor Investment Management
Corporation and 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. Mr. Putnam was formerly Director of Trust
Realty Corp. and Bow Ridge Mining Co. Mr. Putnam is
also a Director or Trustee of each of the funds managed
by Pilgrim Investments.
</TABLE>
2
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<TABLE>
<CAPTION>
Year First Became
Name and Age Principal Occupation for the Last Five Years a Board Member
------------ -------------------------------------------- --------------
<S> <C> <C>
John R. Smith President of New England Fiduciary Company (since 1999
(Age 76) 1991). Mr. Smith is Chairman of Massachusetts
Educational Financing Authority (since 1987); Vice
Chairman of Massachusetts Health and Education
Authority (since 1979) and Vice-Chairman of MHI, Inc.
(Massachusetts Non-Profit Energy Purchasers Consortium)
(since 1996). Mr. Smith is also a Director or Trustee
of each of the funds managed by Pilgrim Investments.
Robert W. Stallings** Chairman, Chief Executive Officer and President of 1995
(Age 51) Pilgrim Group, Inc. (since December 1994); Chairman,
Pilgrim Investments, Inc. (since December 1994);
Chairman, Pilgrim Securities, Inc. (since December
1994); President and Chief Executive Officer of Pilgrim
Funding, Inc. (since November 1999); and President and
Chief Executive Officer of Pilgrim Capital Corporation
and its predecessors (since August 1991). Mr. Stallings
is also a Director, Trustee, or a member of the
Advisory Board of each of the funds managed by Pilgrim
Investments.
John G. Turner** Chairman and Chief Executive Officer of ReliaStar 1999
(Age 60) Financial Corp. and ReliaStar Life Insurance Co. (since
1993); Chairman of ReliaStar Life Insurance Company of
New York (since 1995); Chairman of Northern Life
Insurance Company (since 1992). Mr. Turner was formerly
Director of Northstar Investment Management Corporation
and affiliates (1993 - 1999) and President of ReliaStar
Financial Corp. and ReliaStar Life Insurance Co. (1989
- 1991). Mr. Turner is also Chairman of each of the
funds managed by Pilgrim Investments.
David W. Wallace Chairman of FECO Engineered Systems, Inc. Mr. Wallace 1999
(Age 76) is President and Trustee of the Robert R. Young
Foundation, Governor of the New York Hospital, Trustee
of Greenwich Hospital and Director of UMC Electronics
and Zurn Industries, Inc. Mr. Wallace was formerly
Chairman of Lone Star Industries and Putnam Trust
Company, Chairman and Chief Executive Officer of Todd
Shipyards, Bangor Punta Corporation, and National
Securities & Research Corporation. Mr. Wallace is also
a Director or Trustee of each of the funds managed by
Pilgrim Investments.
</TABLE>
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* May be considered an "interested person," as defined in the Investment
Company Act of 1940, of the Trust. Mr. Gosule is a partner at Clifford
Chance, Rogers & Wells LLP, which provided certain legal services for the
Trust through 1999.
** An "interested person" as defined in the Investment Company Act of 1940 by
virtue of his affiliation with the Trust or Pilgrim Investments or any of
its affiliates.
During the Trust's fiscal year ended February 29, 2000, the Board held five
meetings. Each Trustee attended 100% of such meetings during the period in
which such Trustee served as a Trustee. Paul S. Doherty, Robert B. Goode,
Alan L. Gosule, Mark L. Lipson, Walter H. May, David W.C. Putnam, John R.
Smith, John G. Turner and David W. Wallace commenced service as Trustees on
October 29, 1999.
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COMMITTEES
The Board of Trustees has an Audit Committee whose function is to meet with
the independent auditors of the Trust in order to review the scope of the
Trust's audit, the Trust's financial statements and interim accounting controls,
and to meet with Trust management concerning these matters, among other things.
This Committee currently consists of four independent Trustees: Paul S. Doherty,
Robert B. Goode, John R. Smith and David W. Wallace. Prior to November 1, 1999,
the Committee consisted of five independent Trustees: Walter E. Auch, Mary A.
Baldwin, John P. Burke, Al Burton and Jock Patton. During the fiscal year ended
February 29, 2000, the Audit Committee met four times. Each member of the Audit
Committee attended 100% of such meetings during the period in which such Trustee
was a member of the Committee. Appendices A and B are the Audit Committee
Charter and Addendum adopted by the Trustees, respectively.
The Board of Trustees has a Valuation Committee whose function is to review
the determination of the value of securities held by the Trust for which market
quotations are not available. The Committee currently consists of four
independent Trustees (Al Burton, Walter H. May, Jock Patton and David W.C.
Putnam) and one Trustee (Alan L. Gosule) who may be an "interested person," as
defined in the Investment Company Act of 1940, of the Trust. Since its
commencement on November 16, 1999, the Valuation Committee has met twice. Each
member of the Valuation Committee attended 100% of such meetings during the
period in which such Trustee was a member of the Committee. Prior to November
16, 1999, the current responsibilities of the Valuation Committee were handled
by the Audit Committee.
The Board has an Executive Committee to act for the full Board if necessary
in the event that Board action is needed between regularly scheduled Board
meetings. The Committee currently consists of four Trustees: Walter H. May, Jock
Patton, Robert W. Stallings and John G. Turner. Since its commencement on
January 27, 2000, the Executive Committee has not met.
The Board of Trustees has a Nominating Committee for the purpose of
considering candidates to fill Independent Trustee vacancies on the Board. The
Nominating Committee currently consists of four independent Trustees: Al Burton,
Paul S. Doherty, Robert B. Goode and Walter H. May. Prior to November 1, 1999,
the Committee consisted of Mary A. Baldwin, John P. Burke and Al Burton. The
Trust currently does not have a policy regarding whether the Nominating
Committee will consider nominees recommended by shareholders of the Trust. The
Nominating Committee did not meet during the fiscal year ended February 29,
2000.
REMUNERATION OF BOARD MEMBERS AND OFFICERS
The Trust pays each Trustee who is not an "interested person" a pro rata
share, as described below, of (i) an annual retainer of $20,000; (ii) $5,000 per
quarterly Board meeting; (iii) $500 per committee meeting; (iv) $500 per special
or telephonic meeting; and (v) out-of-pocket expenses. The pro rata share paid
by the Trust is based on the Trust's average net assets as a percentage of the
average net assets of all the funds managed by Pilgrim Investments for which the
Trustees serve in common as Directors/Trustees or as Advisory Board Members, if
applicable. Prior to November 16, 1999, Trustees were compensated pursuant to a
different fee schedule.
The following table sets forth the compensation paid to each of the
Trustees for the fiscal year ended February 29, 2000. Trustees who are
"interested persons" of Pilgrim Investments do not receive any compensation from
the Trust. In the column headed "Total Compensation from Fund Complex Paid to
Trustees," the number in parentheses indicates the total number of Boards in the
Pilgrim Fund complex on which the Trustee served during that year.
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COMPENSATION TABLE
FISCAL YEAR ENDED FEBRUARY 29, 2000
AGGREGATE
COMPENSATION TOTAL COMPENSATION FROM FUND
NAME OF PERSON, POSITION FROM TRUST COMPLEX PAID TO TRUSTEES
------------------------ ---------- ------------------------
Walter E. Auch, Trustee (1)........ $5,327 $34,500 (6 boards)
Mary A. Baldwin, Trustee (2)....... $6,823 $44,188 (8 boards)
John P. Burke, Trustee (1)......... $6,369 $41,250 (6 boards)
Al Burton, Trustee................. $7,595 $49,188 (13 boards)
Paul S. Doherty, Trustee........... $3,542 $22,938 (15 boards)
Robert B. Goode, Jr., Trustee...... $3,542 $22,938 (15 boards)
Alan L. Gosule, Trustee (3)........ $3,542 $22,938 (15 boards)
Mark L. Lipson, Trustee (4)........ $0 $0 (15 boards)
Walter H. May, Trustee............. $3,542 $22,938 (15 boards)
Jock Patton, Trustee............... $7,595 $49,188 (13 boards)
David W.C. Putnam, Trustee......... $3,426 $22,188 (15 boards)
John R. Smith, Trustee............. $3,542 $22,938 (15 boards)
Robert W. Stallings, Trustee (4)... $0 $0 (13 boards)
John G. Turner, Trustee (4)........ $0 $0 (15 boards)
David W. Wallace, Trustee.......... $3,542 $22,938 (15 boards)
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(1) Resigned as a Trustee effective October 29, 1999.
(2) Resigned as a Trustee effective June 15, 2000.
(3) May be considered an "interested person," as defined in the Investment
Company Act of 1940, of the Trust. Mr. Gosule is a partner at Clifford
Chance, Rogers & Wells LLP, which provided certain legal services for the
Trust through 1999.
(4) "Interested person," as defined in the Investment Company Act of 1940,
because of his affiliation with Pilgrim Investments.
VOTE REQUIRED
The affirmative vote of a plurality of the shares of the Trust voting at
the Meeting is required to approve the election of each Nominee.
THE BOARD OF TRUSTEES OF THE TRUST, INCLUDING A MAJORITY OF THE INDEPENDENT
TRUSTEES, RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE NOMINEES UNDER PROPOSAL NO.
1.
PROPOSAL NO. 2
AMENDMENTS IN CONNECTION WITH THE TRUST'S ABILITY TO ISSUE
PREFERRED SHARES OF THE TRUST
PROPOSAL 2A: APPROVAL OF AMENDMENTS TO THE TRUST'S AGREEMENT AND DECLARATION
OF TRUST TO PERMIT THE ISSUANCE OF PREFERRED SHARES OF THE TRUST
The Board of Trustees has approved, subject to shareholder approval,
amendments to the Trust's Agreement and Declaration of Trust (the "Declaration
of Trust") that, along with the proposed amendments to the Trust's fundamental
investment policies discussed below, would authorize the issuance by the Trust
of multiple classes or series of shares (any such additional classes or series
of preferred shares are referred to herein as the "preferred shares"), with
rights as determined by the Board of Trustees, by action of the Board of
Trustees without further shareholder approval. This would permit the Trust to
issue preferred securities, such as variable rate preferred securities. The text
of the proposed amendments to the Declaration of Trust is included as Appendix C
to this proxy statement. Holders of existing shares of beneficial interest of
the Trust (common shares) have no preemptive right to purchase or otherwise
acquire any preferred shares that might be issued.
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<PAGE>
REASONS FOR AUTHORIZATION
At a meeting held on April 27, 2000, the Board of Trustees concluded that
the ability to issue a preferred class of shares would be in the best interests
of the holders of common shares. The Board of Trustees noted that, historically,
the Trust has been able to earn higher income for its common shares due to
leveraging than it would likely have to pay on preferred shares and that,
therefore, the issuance of preferred shares may increase the net investment
income available to the holders of the common shares. In May 1996, the Trust's
shareholders approved the use of borrowing for investment purposes and, shortly
thereafter, the Trust began borrowing through the use of a revolving bank line
of credit. Because of the historical spread between the Trust's borrowing rates
and the yields received on senior loans, borrowing has increased distributions
paid to shareholders of the Trust each year since 1996. For the Trust's fiscal
year ended February 29, 2000, the Trust's average outstanding loan balance was
approximately $524 million. The issuance of preferred shares would potentially
lower the cost of leveraging and allow the Trust to increase the amount of
leverage used for investment purposes. However, the Trust only intends to issue
preferred shares if it believes that the income on investments purchased with
the proceeds of the preferred shares will exceed interest payments to preferred
shareholders and other costs.
In considering whether to approve or disapprove the proposed amendments to
the Declaration of Trust and fundamental investment policies discussed below,
shareholders should consider not only the potential advantages of the issuance
of preferred shares discussed immediately below, but also the income tax
considerations discussed below under "Certain Federal Income Tax
Considerations," and the possible effects of leverage and dilution discussed
below under "Risks of Issuance of Preferred Shares." In addition, shareholders
should be aware that the issuance of preferred shares will increase the total
assets of the Trust, and therefore will result in a greater amount of assets at
work for shareholders. Another effect, subject to shareholder approval, is to
increase the dollar amount of the investment advisory and service fees payable
by the Trust to Pilgrim Investments, since these fees would be calculated as a
percentage of the total assets (including borrowings and the proceeds of
preferred shares) of the Trust. However, the advisory fees as a percentage of
the Trust's total assets would not change as a result of the issuance of
preferred shares.
ISSUANCE OF PREFERRED SHARES
If shareholders approve the proposed amendments to the Declaration of Trust
and the proposed amendments to the Trust's fundamental investment policies
discussed below, the Board of Trustees of the Trust may approve the issuance of
preferred shares in one or more initial series, which may be similar but may
potentially differ in a number of respects, including the dates of issuance, the
amount payable upon redemption or liquidation, the potentially different
application of the Trust's ability to redeem such shares, certain voting rights,
the dividend rates, dividend payment dates and dividend periods, which would be
determined at the time of issuance of each series. The Board of Trustees
believes that issuing a series or more than one series of preferred shares would
ordinarily increase the net investment income available for distribution to the
holders of the common shares because of the effect of leverage (see "Risks of
Issuance of Preferred Shares - Leverage" below), although there can be no
assurance that such increase would in fact be achieved.
The Trust would generally, in most circumstances, have the right to redeem
any series of preferred shares on or about any preferred dividend payment date,
at a stated redemption price plus an amount equal to accumulated and unpaid
dividends.
The Trust would have the proceeds of the issuance of a series of preferred
shares available for investment in accordance with the Trust's investment
objectives and policies. Pilgrim Investments reported to the Board of Trustees
that it expects that under current investment conditions, the Trust would be
able to earn income on the proceeds of the preferred shares that exceeds the
interest that would be payable to the preferred shareholders, thereby providing
greater income to the holders of the common shares. Further, Pilgrim Investments
reported that because interest payable on the portfolio instruments held by the
Trust are reset periodically with changes in prevailing interest rates, it is
not expected that changes in the Trust's interest obligations on the preferred
shares would adversely affect in a material respect the interest earned by the
6
<PAGE>
common shareholders. Of course, shareholders would be subject to the usual
credit risk that the issuers of the senior loans and other assets held by the
Trust may not meet their obligations to pay interest and principal.
Any incremental investment income available from investing new funds
reduced by expenses attributable thereto (net incremental investment income)
would be available for distribution to the holders of the common shares and, if
the net incremental investment income on the Trust's investments exceeds the
dividend rate on the preferred shares, would enhance the income available on the
common shares. Because the holders of the preferred shares would be entitled to
receive dividends before the holders of the common shares, if the dividend rate
on the preferred shares were greater than the net incremental investment income
earned by the Trust on its portfolio investments, the amounts available for
distribution to the holders of the common shares could be reduced. The Board of
Trustees does not intend to approve the issuance of any class of preferred
shares unless it believes, at the time of such issuance, that the income
available on the Trust's common shares is likely for the foreseeable future to
be enhanced by the issuance. In addition, if, after a series of preferred shares
were issued, the continuing payment of dividends on such shares had the effect
of reducing the income available on the common shares, the Trust expects that it
would consider the redemption of preferred shares, to the extent possible or
permitted by the terms of such shares.
The Trust will seek a credit rating of any class of preferred shares from
one or more national securities rating agencies. There can, however, be no
assurance that such credit ratings will be obtained. In addition, obtaining such
credit ratings will involve additional costs to the Trust and may require that
the Trust agree to various financial and operating restraints as a condition of
such credit ratings.
The proposed amendments to the Declaration of Trust would permit issuance
of series of additional classes or series of shares, including preferred shares,
without further shareholder approval. Such broad authorization at this time of
additional classes or series of shares will provide flexibility to take
advantage of opportunities and possible future circumstances in which the
issuance of preferred shares might be desirable. Requiring the shareholders to
meet and approve each separate issuance of such shares would be time-consuming
and costly, particularly in those instances where the number of shares to be
issued may be small in relation to the total capital of the Trust. Moreover, if
shareholder approval of such securities were postponed until a specific need
arose, the delay could, in some instances, deprive the Trust of opportunities
otherwise available.
DESCRIPTION OF PREFERRED SHARES
GENERAL. The proposed amendments to the Declaration of Trust would
authorize the Board of Trustees to establish at or prior to the time of issuance
of a class of preferred shares, or any series thereof, the issue price or
prices, voting rights, dividend rate or rates, redemption price, liquidation
value, conversion rights and such other terms and conditions of that class or
series as the Board of Trustees deems appropriate, without further action on the
part of the common shareholders. Under the 1940 Act, the Trust would not be
permitted to issue preferred shares unless immediately after such issuance the
value of the Trust's assets, less all liabilities and indebtedness not
represented by senior securities (including private or temporary borrowings),
would be at least 200% of (i) the aggregate amount of all debt securities, plus
(ii) the aggregate involuntary liquidation preference of any shares (such as the
preferred shares) having priority as to distribution of assets or payment of
dividends over any other shares.
VOTING RIGHTS. The 1940 Act requires that the holders of any preferred
shares, voting separately as a single class, have the right to elect at least
two Trustees at all times, and, subject to the prior rights, if any, of the
holders of any other class of senior securities outstanding, to elect a majority
of the Trustees at any time two years' dividends on the preferred shares are
unpaid. All other Trustees will be elected by the holders of the common shares
and the preferred shares, voting together as a single class. The 1940 Act also
requires that, in addition to any approval by shareholders that might otherwise
be required, the approval of the holders of a majority of any outstanding
preferred shares, voting separately as a class, would be required to (i) adopt
any plan of reorganization that would adversely affect the preferred shares and
(ii) take any action requiring a vote of security holders pursuant to Section
13(a) of the 1940 Act, including, among other things, changes in the Trust's
sub-classification as a closed-end investment company, changes in the
classification of the Trust from a diversified investment company or changes in
its fundamental investment policies and restrictions. Holders of preferred
shares shall have such other voting rights as are required by law or are
provided by the Trust's Board of Trustees at the time of issuance of the shares,
and holders of a particular series of preferred shares may be entitled to vote
as a separate series on certain matters.
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DIVIDEND AND LIQUIDATION PREFERENCE. Holders of preferred shares would be
entitled to receive dividends before holders of common shares, and would be
entitled to receive the liquidation value (the amount the Trust must pay to
preferred shareholders if the Trust is liquidated) of their shares before any
distributions are made to holders of common shares should the Trust ever be
dissolved. The dividend rights and liquidation value of a class or any
particular series of preferred shares would be determined at the time of
issuance of shares of the class or series, subject to the requirement of the
1940 Act that the dividends payable on preferred shares be cumulative. The Trust
would not be permitted to pay or declare dividends (except a dividend payable in
shares of the Trust) or other distributions on the common shares, or the
purchase of any common shares by the Trust, unless the asset coverage test
described above under "General" would be met, after giving effect to the
dividend or distribution.
RISKS OF ISSUANCE OF PREFERRED SHARES
LEVERAGE. The issuance of preferred shares would create leverage which
would affect the amount of income available for distribution on the Trust's
common shares and the net asset value of the common shares. The initial dividend
rate or rates that would be paid on any class or series of preferred shares
would be determined at the time of issuance and would be the result of
arms-length negotiations with the underwriters and would depend on various
factors including market conditions prevailing at the time. The dividend rate
will reset periodically based on prevailing market prices. At initial issuance
or from time to time thereafter, the dividend rate could exceed both the current
yield on the Trust's portfolio investments and the yield received by the Trust
on investments made with the proceeds of the issuance of the offering of
preferred shares and, therefore, an offering of preferred shares could result in
a reduction of net investment income available for distribution on common
shares.
As a result of leverage, after giving effect to the liquidation preference
of any preferred shares issued, any increase or decrease in the net asset value
per common share would be somewhat greater than would have been the case had no
preferred shares been issued. In addition, the leverage effect created by the
issuance of preferred shares could magnify the effect on the holders of common
shares of any increase or decrease in the yield on the Trust's portfolio for a
given period of time. It is not possible to predict now the effect on the net
asset value of the Trust's common shares that might result from the leverage
effect of issuance of preferred shares. The Board of Trustees does not intend to
issue preferred shares unless it believes, at the time of such issuance, that
such issuance is likely for the foreseeable future to increase the yield on the
Trust's common shares. Furthermore, since any proposed class or series of
preferred shares would, in most cases, be generally redeemable on or about any
dividend payment date at the option of the Trust, those preferred shares may be
redeemed if, after issuance, redemption were considered advisable by the Board
of Trustees and the terms of the preferred shares permitted such redemption.
DILUTION OF VOTING RIGHTS. The voting rights of the outstanding common
shares would be diluted upon the issuance of any preferred shares, because the
holders of any preferred shares would have voting rights as described above
under "Description of Preferred Shares - Voting Rights." Voting rights in the
Trust are non-cumulative.
OTHER CONSIDERATIONS. The class voting requirements of the preferred shares
and the representation of the preferred shares on the Board of Trustees could
make it more difficult for the Trust to engage in certain types of transactions
that might be proposed by the Board of Trustees and/or holders of common shares,
such as a merger, sale of assets, exchange of securities, liquidation of the
Trust or conversion to an open-end fund. Holders of preferred shares might have
interests that differ from holders of common shares and there can be no
assurance that holders of preferred shares will vote to approve transactions
approved by holders of the common shares.
The flexibility to issue preferred shares as well as common shares could
enhance the Board of Trustees' ability to negotiate on behalf of the
shareholders in a takeover but might also render more difficult or discourage a
merger, tender offer or proxy contest, the assumption of control by the holder
of a large block of the Trust's securities and the removal of incumbent
management.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL. Set forth below is a general description of certain federal income
tax consequences to the Trust, and to the holders of common shares of the Trust,
of the issuance by the Trust of a class of preferred shares. The description
assumes that the Trust will continue to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"), as it
did in its most recent fiscal year, so as to be relieved of federal income tax
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<PAGE>
on net investment income and net capital gains distributed to shareholders. If
the Trust were prohibited from paying dividends on its common shares by the
asset coverage requirements of the preferred shares described above under
"Description of Preferred Shares," its ability to meet the qualification
requirements of the Code might be impaired. The Trust expects, however, that to
the extent possible it would purchase or redeem preferred shares to maintain
compliance with such asset coverage requirements. If the Trust failed to qualify
for taxation as a regulated investment company under the Code in any taxable
year, the Trust would be subject to tax on its taxable income at corporate
rates, and all distributions from earnings and profits, including any
distributions of net income and net long-term capital gains, would be taxable to
shareholders as ordinary income. In addition, the Trust would be required to
recognize unrealized gains and make distributions of any undistributed earnings
and profits (along with an interest charge) before re-qualifying for taxation as
a regulated investment company.
DEDUCTION FOR DIVIDENDS PAID BY THE TRUST. As a regulated investment
company, the Trust is generally entitled to a deduction for dividends paid to
its shareholders out of its ordinary income. Under Section 562(c) of the Code, a
distribution will not qualify for the deduction for dividends paid unless the
distribution is pro rata, with no preferences to any share of the Trust as
compared with other shares of the same class, and with no preference to one
class of shares as compared with another class except to the extent that the
former is entitled (without reference to waivers of their rights by
shareholders) to such preference. The Trust intends to make distributions in a
manner that will allow such distributions to qualify for the dividends-paid
deduction.
VOTE REQUIRED
Approval of this Proposal 2a requires an affirmative vote of a majority of
the shares of the Trust voted at the Meeting. This proposal will not be adopted
unless Proposal 2b is also adopted by shareholders.
PROPOSAL 2B: APPROVAL OF AMENDMENTS TO THE TRUST'S FUNDAMENTAL INVESTMENT
POLICIES TO EXPAND ITS ABILITY TO ISSUE SENIOR SECURITIES
The Board of Trustees has approved, subject to shareholder approval,
amendments to the Trust's fundamental investment policies regarding the issuance
of senior securities that would permit the Trust to issue a preferred class of
shares. As discussed above, the Board of Trustees has determined that it would
be in the best interests of the Trust and its shareholders to permit the Trust
to issue a preferred class of shares. The change in investment policy on the
issuance of senior securities will not change the Trust's investment objective
or any of its other investment policies.
The 1940 Act requires registered investment companies such as the Trust to
adopt certain specific investment policies that can be changed only by
shareholder vote. These policies are often referred to as "fundamental
policies." Included among the fundamental policies of the Trust are policies
regarding the issuance of "senior securities," which includes, among other
things, preferred classes of shares.
The Trust's current fundamental policy on the issuance of senior securities
is as follows:
[The Trust may not] issue senior securities, except insofar as the
Trust may be deemed to have issued a senior security by reason of (i)
entering into certain interest rate hedging transactions, (ii)
entering into reverse repurchase agreements, or (iii) borrowing money
in an amount not exceeding 33 1/3%, or such other percentage permitted
by law, of the Trust's total assets (including the amount borrowed)
less all liabilities other than borrowings.
In addition, the Trust's fundamental investment policies provide that:
[The Trust may not] make investments on margin or hypothecate,
mortgage or pledge any of its assets except for the purpose of
securing borrowings as described above in connection with the issuance
of senior securities and then only in an amount up to 33 1/3%, or such
other percentage permitted by law, of the value of the Trust's total
assets (including the amount borrowed) less all liabilities other than
borrowings.
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As amended, the Trust's fundamental policies regarding the issuance of
senior securities and borrowing would be as follows (language proposed to be
deleted is stricken out and language proposed to be added is shown in italics):
[The Trust may not] issue senior securities, except insofar as the
Trust may be deemed to have issued a senior security by reason of (i)
entering into certain interest rate hedging transactions, (ii)
entering into reverse repurchase agreements, or (iii) borrowing money
in an amount not exceeding 33 1/3%, or such other percentage permitted
by law, of the Trust's total assets (including the amount borrowed)
less all liabilities other than borrowings , OR (IV) ISSUING A CLASS
OR CLASSES OF PREFERRED SHARES IN AN AMOUNT NOT EXCEEDING 50%, OR SUCH
OTHER PERCENTAGE PERMITTED BY LAW, OF THE TRUST'S TOTAL ASSETS LESS
ALL LIABILITIES AND INDEBTEDNESS NOT REPRESENTED BY SENIOR SECURITIES.
and
[The Trust may not] make investments on margin or hypothecate,
mortgage or pledge any of its assets except for the purpose of
securing borrowings as described above in connection with the issuance
of senior securities and then only in an amount up to 33 1/3% (50% IN
THE CASE OF THE ISSUANCE OF A PREFERRED CLASS OF SHARES), or such
other percentageS permitted by law, of the value of the Trust's total
assets (including, WITH RESPECT TO BORROWINGS, the amount borrowed)
less all liabilities other than borrowings (OR, IN THE CASE OF THE
ISSUANCE OF SENIOR SECURITIES, LESS ALL LIABILITIES AND INDEBTEDNESS
NOT REPRESENTED BY SENIOR SECURITIES).
The proposed amendments are necessary in order for the Trust to issue a
class of preferred shares.
VOTE REQUIRED
Approval of this Proposal No. 2b requires an affirmative vote of the lesser
of (i) 67% or more of the shares of the Trust present at the Meeting if more
than 50% of the outstanding shares of the Trust are present or represented by
proxy, or (ii) more than 50% of the outstanding shares of the Trust. This
proposal will not be adopted unless Proposal 2a is also adopted by shareholders.
PROPOSAL 2C: APPROVAL OF AMENDMENTS TO THE TRUST'S INVESTMENT MANAGEMENT
AGREEMENT
The Board of Trustees has approved, subject to shareholder approval, an
amendment to the Trust's Investment Management Agreement with Pilgrim
Investments. The proposed amendment provides that Pilgrim Investments will
receive its current rate schedule based upon the "Managed Assets" of the Trust.
"Managed Assets" is defined to mean the average daily gross asset value of the
Trust, minus the sum of the Trust's accrued and unpaid dividends on any
outstanding preferred shares and accrued liabilities (other than liabilities for
principal amount of any borrowings incurred, commercial paper or notes issued by
the Trust and the liquidation preference of any outstanding preferred shares).
Currently, Pilgrim Investments' fee is calculated based on the Trust's average
daily net assets plus the proceeds of any outstanding borrowings, therefore, if
a preferred class of shares were issued, Pilgrim Investments would receive no
fee for managing all or most of the proceeds of the preferred shares. For
accounting purposes, a liquidation preference attached to a preferred share is
treated as a liability and would therefore be subtracted from assets of the
Trust for purposes of calculating Pilgrim Investments' fee. If the proposed
amendment to the Investment Management Agreement is adopted, Pilgrim
Investments' fee will be determined based on the Trust's Managed Assets.
However, the rate at which the fee is calculated will remain unchanged. The
proposed Amendment to the Investment Management Agreement is attached to this
proxy statement as Appendix D.
In approving the amendment to the Investment Management Agreement, the
Trustees, including those Trustees who are not "interested persons" of Pilgrim
Investments or its affiliates, considered (i) the benefit to the Trust from the
additional investment advisory services that Pilgrim Investments would be
performing for the Trust, and (ii) the amount of compensation that Pilgrim
Investments would receive pursuant to the amendment to the Investment Management
Agreement. If the amendments to the Trust's Declaration of Trust described in
Proposal 2a and the Trust's fundamental investment policies described in
Proposal 2b are adopted, the Trust may issue one or more classes or series of
preferred shares and would use the proceeds of the preferred shares for
investment purposes. The Board of Trustees considered the fact that managing
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<PAGE>
these investments will require Pilgrim Investments to provide additional
services to the Trust. In particular, Pilgrim Investments would be required to
analyze potential investment opportunities, and would have to monitor a larger
investment portfolio. Thus, Pilgrim Investments would render additional services
and expend greater resources. The Trustees noted that other investment companies
with similar investment objectives that issue preferred classes or series of
shares calculate fees paid to their investment advisers on the basis of Managed
Assets under management. The Trustees gave particular weight to the potential
benefit to shareholders of the issuance of a preferred class of shares and to
the fact that the shareholders of the Trust would be receiving additional
services from Pilgrim Investments in connection with the management of the
proceeds of any such issuance.
THE INVESTMENT MANAGEMENT AGREEMENT
The Investment Management Agreement, dated April 7, 1995, was initially
approved by the shareholders of the Trust on April 4, 1995, and amendments to
the Agreement were approved on May 2, 1996 and August 6, 1998. The amended
Agreement was last approved by the Trust's Board of Trustees, including a
majority of the Trustees who are not parties to the Investment Management
Agreement or interested persons of such parties, at a meeting held on August 2,
1999.
The terms of the Investment Management Agreement other than those related
to the amount of the fee will not be changed by the proposed Amendment.
SERVICES. Pursuant to the Investment Management Agreement, Pilgrim
Investments furnishes the Trust with investment advice and investment management
and administrative services with respect to the Trust's assets, including making
specific recommendations as to the purchase and sale of portfolio investments,
furnishing requisite office space and personnel, and managing the Trust's
investments subject to the ultimate supervision and direction of the Board of
Trustees.
LIABILITY OF THE INVESTMENT MANAGER. The Investment Management Agreement
provides that Pilgrim Investments is not 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 under the Investment Management Agreement or
for any losses that may be sustained in the purchase, holding or sale of any
security by the Trust, except by reason of willful malfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties under the
Investment Management Agreement.
TERMINATION. The Investment Management Agreement will terminate
automatically in the event of its assignment. In addition, it may be terminated
by Pilgrim Investments upon sixty days' written notice to the Trust, and by the
Trust upon the vote of a majority of the Trust's Board of Trustees or a majority
of the outstanding voting shares of the Trust, upon sixty days' written notice
to Pilgrim Investments.
COMPENSATION. For its services under the Investment Management Agreement,
Pilgrim Investments is paid a fee equal to 0.80% of the Trust's average daily
net assets, plus the proceeds of any outstanding borrowings.
Pilgrim Investments will reduce its aggregate fees for any fiscal year, or
reimburse the Trust to the extent required, so that the Trust's expenses do not
exceed the expense limitations applicable to the Trust under the securities laws
or regulations of those states or jurisdictions in which the Trust's shares are
qualified for sale. The Trust believes that it currently is not subject to
expense limitations under state law. The investment management fees incurred by
the Trust for its most recent fiscal year ended February 29, 2000 were
$13,076,669.
EFFECT OF THE AMENDMENT TO THE INVESTMENT MANAGEMENT AGREEMENT
The amendment to the Investment Management Agreement would increase the
base of assets upon which Pilgrim Investments' fees are calculated by the amount
of the proceeds raised from any issuance of preferred shares. Currently, the
fees paid to Pilgrim Investments are based on the average daily net assets of
the Trust, plus the proceeds of any borrowing, and thus would only include the
proceeds of the issuance of preferred shares to the extent that the proceeds
exceed the liquidation preference of the shares.
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RATE OF COMPENSATION UNDER THE AMENDMENT TO THE INVESTMENT MANAGEMENT
AGREEMENT. The following table is intended to assist you in understanding the
various costs and expenses directly or indirectly associated with investing in
the Trust should the proposed amendment to the Investment Management Agreement
be adopted, as estimated by Pilgrim Investments:
<TABLE>
<CAPTION>
As a Percentage of As a Percentage of Net As a Percentage of
Net Assets Assets Plus Borrowing Managed Assets
------------------------ ------------------------ ------------------------
After After After
Proposed Proposed Proposed
Current(1) Amendment(2) Current(1) Amendment(2) Current(1) Amendment(2)
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment Management Fees (3) 1.14% 1.41% 0.80% 0.98% 0.80% 0.80%
Administration Fee (4) 0.36% 0.44% 0.25% 0.31% 0.25% 0.25%
Other Expenses (5) 0.16% 0.16% 0.11% 0.11% 0.11% 0.09%
----- ----- ----- ----- ----- -----
TOTAL ANNUAL OPERATING EXPENSES 1.66% 2.01% 1.16% 1.40% 1.16% 1.14%
</TABLE>
----------
(1) Expense level based on the Trust's expenses for its fiscal year ending
February 29, 2000, as adjusted for material changes. Adjustments include
cessation of a waiver on a portion of the management fee. Assumes borrowing
in the amount of $524,000,000 and no outstanding preferred shares.
(2) Expenses estimated based upon "current expenses" as shown in the chart and
assuming borrowing in the amount of $475,000,000 and the issuance of
$450,000,000 in a preferred class of shares.
(3) The Investment Management Fee is equal to 0.80% of the average daily net
assets of the Trust plus the proceeds of any outstanding borrowings. If the
amendment to the Investment Management Agreement is adopted, the Investment
Management Fee will be determined based on the Trust's Managed Assets.
However, the rate at which fees are calculated will remain unchanged.
(4) Effective May 1, 2000, the Administration Fee is equal to an annual rate of
0.25% of the Trust's Managed Assets.
(5) Other expenses are based upon the Trust's fiscal year ended February 29,
2000, and does not include expenses of borrowing or expenses associated
with the offer and sale of a preferred class of shares.
EXAMPLE. Based upon the annual expenses as a percentage of net assets plus
borrowing, assuming a 5% return and where the Trust has borrowed, an investor
would pay the following expenses on a $10,000 investment:
One Three Five Ten
Year Years Years Years
----- ----- ----- -----
$298.02 $912.52 $1,552.48 $3,270.75
EXAMPLE. Based upon the annual expenses as a percentage of net assets plus
borrowing, assuming 5% return and where the Trust has NOT borrowed, an investor
would pay the following expenses on a $10,000 investment:
One Three Five Ten
Year Years Years Years
----- ----- ----- -----
$118.23 $368.48 $638.31 $1,408.96
EXAMPLE. Based upon the annual expenses as a percentage of Managed Assets,
assuming 5% return and where the Trust has borrowed, an investor would pay the
following expenses on a $10,000 investment:
One Three Five Ten
Year Years Years Years
----- ----- ----- -----
$298.02 $912.52 $1,552.48 $3,270.75
EXAMPLE. Based upon the annual expenses as a percentage of Managed Assets,
assuming 5% return and where the Trust has NOT borrowed, an investor would pay
the following expenses on a $10,000 investment:
One Three Five Ten
Year Years Years Years
----- ----- ----- -----
$118.23 $368.48 $638.31 $1,408.96
These hypothetical examples assume that all dividends and other
distributions are reinvested at net asset value and that the percentage amounts
listed under Annual Expenses above remain the same in the years shown. The
assumption in the hypothetical example of a 5% annual return is required by
regulation of the Securities and Exchange Commission; the assumed 5% annual
return is not a prediction of, and does not represent, the projected or actual
performance of the Trusts' shares. (The foregoing example assumes that no
front-end sales load or other fee is paid at the time of acquisition.)
The forgoing examples should not be considered a representation of past or
future expenses, and actual expenses may be greater or less than those shown.
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INFORMATION ABOUT PILGRIM INVESTMENTS
Organized in December 1994, Pilgrim Investments is registered as an
investment adviser with the Securities and Exchange Commission. As of May 31,
2000, Pilgrim Investments managed over $15.9 billion in assets. Pilgrim
Investments is an indirect wholly-owned subsidiary of ReliaStar Financial Corp.
("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.
Prior to April 30, 2000, Pilgrim Advisors, Inc. ("Pilgrim Advisors") served
as investment adviser to certain of the Pilgrim Funds. On April 30, 2000,
Pilgrim Advisors, also an indirect wholly-owned subsidiary of ReliaStar, merged
with Pilgrim Investments, and Pilgrim Investments is the surviving corporation
from that merger.
Pilgrim Investment's principal address is 40 North Central Avenue, Suite
1200, Phoenix, Arizona 85004.
Pilgrim Investments does not act as investment adviser to any other
registered investment companies with investment objectives and policies similar
to those of the Trust. See Appendix E to this proxy statement for a list of the
Directors and principal executive officer of Pilgrim Investments. For its fiscal
year ended February 29, 2000, the Trust paid fees to Pilgrim Investments,
Pilgrim Group, Inc. and Pilgrim Securities, Inc. in the amounts of $13,076,669,
$2,139,091 and $202,141, respectively.
VOTE REQUIRED
Approval of this Proposal No. 2c requires an affirmative vote of the lesser
of (i) 67% or more of the shares of the Trust present at the Meeting if more
than 50% of the outstanding shares of the Trust are present or represented by
proxy, or (ii) more than 50% of the outstanding shares of the Trust.
THE BOARD OF TRUSTEES OF THE TRUST, INCLUDING A MAJORITY OF THE INDEPENDENT
TRUSTEES, RECOMMENDS THAT YOU VOTE "FOR" THESE PROPOSALS 2A, 2B AND 2C.
PROPOSAL NO. 3
APPROVAL OF INVESTMENT MANAGEMENT AGREEMENT
On April 30, 2000, ReliaStar entered into an agreement (the "Transaction")
to be acquired by ING. ING is a global financial institution active in the
fields of insurance, banking and asset management. Headquartered in Amsterdam,
it conducts business in more than 60 countries, and has almost 90,000 employees.
ING seeks to provide a full range of integrated financial services to private,
corporate, and institutional clients through a variety of distribution channels.
As of December 31, 1999, ING had total assets of approximately $471.8 billion
and assets under management of approximately $330.3 billion. ING includes, among
its numerous direct and indirect subsidiaries, Baring Asset Management, Inc. in
Boston, Mass., ING Investment Management Advisors B.V. in The Hague, The
Netherlands, Furman Selz Capital Management LLC in New York, N.Y., ING
Investment Management LLC in Atlanta, Georgia, Baring International Investment
Limited in London, England and Baring Asset Management (Asia) Limited in Hong
Kong. Completion of the Transaction is contingent upon, among other things,
approval by the Directors/Trustees of the Pilgrim Funds, and certain Pilgrim
Fund shareholder and regulatory approvals.
In the Transaction, ING will issue to stockholders of ReliaStar $54.00 in
cash for each share of ReliaStar common stock held by them, subject to possible
adjustments. On __________, 2000, the total number of shares of ReliaStar
outstanding was ___.
Pilgrim is expected to remain intact after the Transaction. Pilgrim does
not currently anticipate that there will be any changes in the investment
personnel primarily responsible for the management of the Pilgrim Funds as a
result of the Transaction. ING's principal executive offices are located at
Strawinskylaan 2631, 1077 zz Amsterdam, P.O. Box 810, 1000 AV Amsterdam, the
Netherlands.
Shareholders of each of the Pilgrim Funds are being asked to approve new
Investment Management Agreements (the "New Agreement") 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 MANAGEMENT AGREEMENTS (THE "CURRENT AGREEMENT")
MAY TERMINATE AUTOMATICALLY AS A RESULT OF THE TRANSACTION.
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The Transaction between ReliaStar and ING is scheduled to close in
September 2000. As a result of this transaction, ReliaStar will become a
wholly-owned subsidiary of ING America Insurance Holdings, Inc., a subsidiary of
ING. Pilgrim Investments will remain a wholly-owned subsidiary of ReliaStar. The
change in ownership of Pilgrim Investments resulting from this transaction may
be deemed 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. A Form of the New Agreement for the Trust is attached as Appendix F to
this proxy statement.
Pilgrim Investments and representatives of ING have advised the Trust 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 Trust under the Current Agreement will
continue to be responsible under the New Agreement. Pilgrim Investments does not
anticipate that the Transaction will cause any reduction in the quality of
services now provided to the Trust or have any adverse effect on Pilgrim
Investments' ability to fulfill its obligations to the Trust.
The terms of the New Agreement are the same in all respects as the terms of
the Current Agreement, except for the date. The Current Agreement was last
approved by the Trust's Board of Trustees, including a majority of the Trustees
who were not parties to the Current Agreement or interested persons of such
parties, at a Meeting held on August 2, 1999. Even though the Board of Trustees
of the Trust was not required to reapprove the Current Agreement at the April
27, 2000 meeting, the Board reviewed at that meeting such information necessary
to evaluate the terms of the Current Agreement. The shareholders of the Trust
last approved the Current Agreement on October 26, 1999.
At the June 13, 2000 meeting of the Board of Trustees of the Trust, the New
Agreement was approved unanimously by the Board of Trustees, including all of
the Trustees who are not interested parties to the New Agreement or interested
persons of such parties. The New Agreement as approved by the Board of Trustees
is submitted for approval by the shareholders of the Trust.
If the New Agreement is approved by shareholders, it will take effect
immediately after the closing of the Transaction. The New Agreement will remain
in effect for two years from the date it takes effect, and, unless earlier
terminated, will continue from year to year thereafter, provided that each such
continuance is approved annually with respect to the Trust (i) by the Board of
Trustees or by the vote of a majority of the outstanding voting securities of
the Trust, and, in either case, (ii) by a majority of the Trust's Trustees who
are not parties to the New Agreement or "interested persons" of any such party
(other than as Trustees of the Trust).
If the shareholders of any Pilgrim 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 Pilgrim Funds under the Current Agreements. If
Proposal 2c is approved by shareholders of the Trust, Pilgrim Investments will
continue to serve as adviser to the Trust under the amendment to the Investment
Management Agreement. If Proposal 2c is not approved by shareholders of the
Trust, Pilgrim Investments will continue to serve as adviser to the Trust under
the Current Agreement or under the New Agreement, as applicable.
THE TERMS OF THE NEW AGREEMENT
The terms of the New Agreement will be the same in all respects as that of
the Current Agreement, except for the date. The New Agreement requires Pilgrim
Investments to provide, subject to the supervision of the Board of Trustees,
investment advice and investment services to the Trust and to furnish advice and
recommendations with respect to investment of the Trust's assets and the
purchase or sale of its portfolio securities. Pilgrim Investments also provides
investment research and analysis.
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<PAGE>
There will be no increase in advisory fees for the Trust as a result of the
acquisition of Pilgrim Investments by ING. The annual advisory fee under the New
Agreement will continue to be equal to 0.80% of the Trust's average daily net
assets, plus the proceeds of any outstanding borrowings. If Proposal 2c is
approved by shareholders of the Trust, the annual advisory fee under the
Investment Management Agreement will be equal to 0.80% of the Trust's Managed
Assets. If Proposal 2c is not approved by shareholders of the Trust, the annual
advisory fee will continue to be equal to 0.80% of the Trust's average daily net
assets, plus the proceeds of any outstanding borrowings.
Like the Current Agreement, the New Agreement provides that Pilgrim
Investments is not subject to liability to the Trust 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.
The New Agreement may be terminated by the Trust without penalty upon not
less than 60 days' notice by the Board of Trustees, by a vote of the holders of
a majority of the Trust's outstanding shares voting as a single class, or by
Pilgrim Investments. The New Agreement will terminate automatically in the event
of its "assignment" (as defined in the Investment Company Act of 1940).
INFORMATION ABOUT PILGRIM INVESTMENTS
Organized in December 1994, Pilgrim Investments is registered as an
investment adviser with the Securities and Exchange Commission. As of May 31,
2000, Pilgrim Investments managed over $15.9 billion in assets. Pilgrim
Investments is 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.
Prior to April 30, 2000, Pilgrim Advisors served as investment adviser to
certain of the Pilgrim Funds. On April 30, 2000, Pilgrim Advisors, also an
indirect wholly-owned subsidiary of ReliaStar, merged with Pilgrim Investments,
and Pilgrim Investments is the surviving corporation from that merger.
Pilgrim Investment's principal address is 40 North Central Avenue, Suite
1200, Phoenix, Arizona 85004.
Pilgrim Investments does not act as investment adviser to any other
registered investment companies with investment objectives and policies similar
to those of the Trust. See Appendix E to this proxy statement for a list of the
Directors and principal executive officer of Pilgrim Investments. For its fiscal
year ended February 29, 2000, the Trust paid fees to Pilgrim Investments,
Pilgrim Group, Inc. and Pilgrim Securities, Inc. in the amounts of $13,076,669,
$2,139,091 and $202,141, respectively.
EVALUATION BY THE BOARD OF TRUSTEES
In determining whether or not it was appropriate to approve the New
Agreement and to recommend approval to shareholders, the Board of Trustees,
including the Trustees who are not interested persons of Pilgrim Investments,
considered various materials and representations provided by Pilgrim Investments
which included representations made by ING and considered a report provided at
the meeting by representatives of ING. The Independent Trustees were advised by
independent legal counsel with respect to these matters.
Information considered by the Trustees included, among other things, the
following: (1) Pilgrim Investments' representation that is expected to remain
intact after the Transaction, and that the same persons currently responsible
for management of the Trust are expected to continue to manage the Trust after
the Transaction closes; (2) that the compensation to be received by Pilgrim
Investments under the New Agreement is the same as the compensation paid under
the Current Agreement; (3) ING America Insurance Holdings, Inc.'s representation
that it will use reasonable best efforts to assure than an "unfair burden" (as
defined in the Investment Company Act of 1940) is not imposed on the Trust as a
result of the Transaction; (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) the commonality of
the terms and provisions of the New Agreement and Current Agreement; and (6)
ING's financial strength and commitment to the advisory business.
15
<PAGE>
Further, the Board of Trustees reviewed its determinations reached at its
meeting on August 2, 1999 and reviewed the supplemental information provided at
its meeting on April 27, 2000 respecting the Current Agreement and, with respect
to the Current Agreement, (1) the nature and quality of the services rendered by
Pilgrim Investments under the Agreement; (2) the fairness of the compensation
payable to Pilgrim Investments under the Agreement; (3) the results achieved by
Pilgrim Investments for the Trust; and (4) the personnel, operations and
financial condition, and investment management capabilities, methodologies, and
performance of Pilgrim Investments. The Board also considered the services
provided by Pilgrim Group, Inc. as administrator to the Trust and the fees
received by Pilgrim Group, Inc. for such services.
Based upon its review, the Board determined that, by approving the New
Agreement, the Trust can best be assured that services from Pilgrim Investments
will be provided without interruption. The Board also determined that the New
Agreement is in the best interests of the Trust and its 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 Agreement and voted to recommend its approval by the Trust's
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, Pilgrim Investments will continue to manage the Trust pursuant to
the Current Agreement. If Proposal 2c is approved by shareholders of the Trust,
Pilgrim Investments will continue to manage the Trust pursuant to the amendment
to the Investment Management Agreement. If Proposal 2c is not approved by
shareholders of the Trust, Pilgrim Investments will continue to manage the Trust
pursuant to the Current Agreement or the New Agreement, as applicable.
VOTE REQUIRED
Approval of this Proposal No. 3 requires an affirmative vote of the lesser
of (i) 67% or more of the shares of the Trust present at the Meeting if more
than 50% of the outstanding shares of the Trust are present or represented by
proxy, or (ii) more than 50% of the outstanding shares of the Trust.
THE BOARD OF TRUSTEES OF THE TRUST, INCLUDING A MAJORITY OF THE INDEPENDENT
TRUSTEES, RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 3.
PROPOSAL NO. 4
RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC AUDITORS
At a meeting of the Board of Trustees held on April 27, 2000, the Board,
including a majority of Trustees who are not "interested persons" as defined in
the Investment Company Act of 1940, as well as the Trustees who are members of
the Audit Committee, selected KPMG LLP ("KPMG") to act as the independent
auditors of the Trust for the fiscal year ending February 28, 2001.
KPMG has served as independent auditors for the Trust with respect to its
financial statements for the fiscal years ending February 29, 1996 through
February 29, 2000.
KPMG has advised the Trust that it is an independent auditing firm and has
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
telephonically should any matter arise requiring their participation.
VOTE REQUIRED
The affirmative vote of a majority of the shares of the Trust voted at the
Meeting is required to ratify the selection of independent auditors.
16
<PAGE>
THE BOARD OF TRUSTEES OF THE TRUST, INCLUDING A MAJORITY OF THE INDEPENDENT
TRUSTEES, RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 4.
GENERAL INFORMATION
OTHER MATTERS TO COME BEFORE THE MEETING
The Trust's management 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
ING America Insurance Holdings, Inc. and ReliaStar, the indirect parent
company of Pilgrim Investments, have agreed to use their reasonable best efforts
to assure compliance with the conditions of Section 15(f) of the Investment
Company Act of 1940, as amended. 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 of 1940, 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 of 1940.
VOTING RIGHTS
Each share of beneficial interest of the Trust is entitled to one vote.
Shareholders of the Trust at the close of business on June 19, 2000 (the "Record
Date") will be entitled to be present and to give voting instructions for the
Trust at the Meeting and any adjournments thereof with respect to their shares
owned as of the Record Date. As of the Record Date, the Trust had
136,043,412.928 shares outstanding.
A majority of the outstanding shares of the Trust 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.
The Trust expects that, before the Meeting, broker-dealer firms holding
shares of the Trust in "street name" for their customers will request voting
instructions from their customers and beneficial owners. If these instructions
are not received by the date specified in the broker-dealer firms' proxy
solicitation materials, the Trust understands that the broker-dealers that are
members of the New York Stock Exchange may vote on the items to be considered at
the Meeting on behalf of their customers and beneficial owners under rules of
the New York Stock Exchange.
17
<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 Trust, as of _____ ___, 2000, no current Trustee of
the Trust owned 1% or more of the outstanding shares of the Trust and the
officers and Trustees of the Trust own, as a group, less than 1% of the shares
of the Trust.
BENEFICIAL OWNERS
Appendix G to this proxy statement lists the persons that, to the knowledge
of the Trust, owned beneficially 5% or more of the outstanding shares of the
Trust as of May 31, 2000.
SOLICITATION OF PROXIES
Solicitation of proxies is being made primarily by the mailing of this
Notice and Proxy Statement with its enclosures on or about _____ ___, 2000.
Shareholders of the Trust 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 Trust and employees of
Pilgrim Investments, Inc. and its affiliates, without additional compensation,
may solicit proxies in person or by telephone, telegraph, facsimile, or oral
communication. The Trust has retained Shareholder Communications Corporation
("SCC"), a professional proxy solicitation firm, to assist with any necessary
solicitation of proxies. As the Meeting date approaches, certain shareholders of
the Trust may receive a telephone call from SCC asking the shareholder to vote.
A shareholder may revoke the accompanying proxy at any time prior to its
use by filing with the Trust 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 Trustees that may be
presented at the Meeting.
EXPENSES
The Trust will pay the expenses incurred by it in connection with Proposals
1, 2a, 2b, 2c, 4 and 5 of this Notice and Proxy Statement and the Meeting,
including the printing, mailing, solicitation and vote tabulation expenses,
legal fees, and out of pocket expenses.
Pilgrim Investments or an affiliate, or ING, will pay the expenses of the
Trust in connection with Proposal 3 of this Notice and Proxy Statement and the
Meeting, including the printing, mailing, solicitation and vote tabulation
expenses, legal fees, and out of pocket expenses.
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 the Trust.
Pilgrim Securities, Inc., whose address is 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004, is the Distributor for the Trust.
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EXECUTIVE OFFICERS OF THE TRUST
Officers of the Trust are elected by the Board of Trustees of the trust and
hold office until they resign, are removed or are otherwise disqualified to
serve. The chart below lists the principal executive officers of the Trust,
together with such person's position with the Trust and principal occupation for
the last five years.
<TABLE>
<CAPTION>
Name Position With the Trust Principal Occupation for the Last Five Years
---- ----------------------- --------------------------------------------
<S> <C> <C>
James R. Reis Executive Vice President Director, Vice Chairman (since December 1994),
(Age 42) (since April 1995), Chief Executive Vice President (since April 1995), Pilgrim
Credit Officer (since Group, Inc. and Pilgrim Investments, Inc.; a Director
June 1997) and Assistant (since December 1994), Vice Chairman (since November
Secretary (since April 1995) and Assistant Secretary (since January 1995),
1997) Pilgrim Securities, Inc.; Executive Vice President
(since April 1995) and Assistant Secretary of each of
the Pilgrim Funds (since May 1997); 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.
James M. Hennessy Executive Vice President Executive Vice President (since April 1998) and
(Age 51) (since May 1998) and Secretary (since April 1995), Pilgrim Capital
Secretary (since April Corporation; Executive Vice President and Treasurer
1995) (since April 1998) and Secretary (since April 1995),
Pilgrim Group, Inc. and Pilgrim Investments, Inc.;
Executive Vice President (since April 1998) and
Secretary (since April 1995), Pilgrim Securities, Inc.;
Executive Vice President (since May 1998) and Secretary
(since April 1995) of each of the Pilgrim Funds.
Formerly Senior Vice President of each of the Pilgrim
Funds (April 1995 - April 1998). Presently serves or
has served as an officer of other affiliates of Pilgrim
Capital Corporation.
Daniel A. Norman Senior Vice President Senior Vice President of Pilgrim Investments, Inc. and
(Age 42) (since April 1995), Pilgrim Securities, Inc. (since December 1994).
Treasurer (since June Presently serves or has served as an officer of other
1997), and Co-Senior affiliates of Pilgrim Capital Corporation.
Portfolio Manager (since
December 1999)
Jeffrey A. Bakalar Senior Vice President Senior Vice President of Pilgrim Investments, Inc.
(Age 42) (since November 1999) and (since November 1999).
Co-Senior Portfolio
Manager (since December
1999)
Michael J. Roland Senior Vice President and Senior Vice President and Chief Financial Officer of
(Age 42) Principal Financial Pilgrim Group, Inc., Pilgrim Investments, Inc., and
Officer (since June 1998) Pilgrim Securities, Inc. (since June 1998); Senior Vice
President and Chief Financial Officer (since June 1998)
of each of the Pilgrim Funds. Formerly served in same
capacity (January 1995 - April 1997). Chief Financial
Officer of Endeaver Group (April 1997 to June 1998).
</TABLE>
19
<PAGE>
SHAREHOLDER PROPOSALS
It is anticipated that the next annual meeting of the Trust will be held in
June 2001. 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 ___, 2001 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.
REPORTS TO SHAREHOLDERS
The Trust will furnish, without charge, a copy of the Annual Report and the
most recent Semi-Annual Report regarding the Trust 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) 992-1080.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
U.S. securities laws require that the Trust's shareholders owning more than
ten percent of the outstanding Shares of the Trust, Trustees, and officers, as
well as affiliated persons of the Trust's Investment Manager, 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 29, 2000 all officers, directors, and greater than ten percent
beneficial owners complied with the applicable Section 16(a) filing requirements
except for the following:
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
June ___, 2000
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
20
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APPENDIX A
PILGRIM FUNDS
AUDIT COMMITTEE CHARTER
AS AMENDED APRIL 27, 2000
The Audit Committees of each of the Board of Directors/Trustees of the
Pilgrim Funds (each a "Fund," collectively, the "Funds") are established to
oversee the financial reporting and internal accounting controls of the Funds.
Each Committee shall have unrestricted access to the applicable Fund's
Trustees/Directors, the independent auditors, Fund counsel, and the executive
and financial management of the Fund and may meet with such persons without the
participation of any other representatives of Fund management.
Each Audit Committee shall be composed of independent ("disinterested")
Trustees/Directors or Advisory Board Members of the Fund elected by the Board of
the applicable Fund. The Audit Committee members shall appoint the chairperson.
Each Audit Committee shall meet at least twice annually. Such meetings
shall, unless otherwise determined by the Audit Committee members, include
executive sessions outside the presence of the investment adviser to the Funds.
Special meetings shall be called as circumstances require. Minutes of all
meetings of each Audit Committee shall be submitted to the Board of
Trustees/Directors of the relevant Fund.
In furtherance of its responsibilities, each Committee shall:
* Recommend to the Board the selection of an independent public accounting
firm.
* Review and recommend to the Board the approval of the scope of the proposed
audit each year, the audit procedures to be utilized and the proposed audit
fees. At the conclusion of such audit, the committee will review such audit
with the independent auditors, including any comments or recommendations.
* Review the annual financial statements of the applicable Fund and
significant accounting policies underlying the statements and their
presentation to the public in the Annual Report.
* Review with the applicable Fund's financial management and its independent
public accountants the adequacy and effectiveness of internal controls and
procedures and the quality of the staff implementing these controls and
procedures.
* Review and recommend appropriate action with respect to any matter brought
to its attention within the scope of its duties.
* Consider and take steps to implement such other matters as it may deem
appropriate in carrying out the above responsibilities and any other
matters that may be assigned to it by the Board.
A-1
<PAGE>
APPENDIX B
ADDENDUM
TO THE
AUDIT COMMITTEE CHARTER
WITH RESPECT TO
PILGRIM PRIME RATE TRUST
As an issuer listed on the New York Stock Exchange ("NYSE"), Pilgrim Prime
Rate Trust ("PPR") is required to comply with the rules and regulations of the
NYSE, which include, among other things, standards for audit committees of
listed issuers. Accordingly, the Board of Trustees of PPR has adopted this
Addendum ("Addendum") to the Audit Committee Charter which sets forth additional
requirements for the Audit Committee ("Committee") of PPR.
1. The Committee shall review and reassess the adequacy of the Audit Committee
Charter and this Addendum an annual basis.
2. The purpose of this Addendum is to specify that:
(a) the independent public accounting firm (the "Auditor") for PPR is
ultimately accountable to the Board of Trustees and the Committee;
(b) the Committee and the Board of Trustees have the ultimate authority
and responsibility to select, evaluate and, where appropriate, replace
the Auditor (or to nominate the Auditor to be proposed for shareholder
approval in any proxy statement);
(c) the Committee is responsible for ensuring that the Auditor submits on
a periodic basis to the Committee a formal written statement
delineating all relationships between the Auditor and PPR; and
(d) the Committee is responsible for reviewing with the Auditor any
disclosed relationships or services that may impact the objectivity
and independence of the Auditor. The Committee shall also recommend
that the Board of Trustees take appropriate action in response to the
Auditor's report to satisfy itself of the Auditor's independence.
3. Committee Composition and Expertise Requirements.
(a) The Committee shall consists of at least three independent Trustees,
all of whom have no relationship with PPR that may interfere with the
exercise of their independence from management and PPR. The members of
the Committee also shall meet the requirements for "independence" as
provided in Rule 303.01(B)(3) of the NYSE Listed Company Manual.
(b) Each member of the Committee shall be "financially literate" as that
term is interpreted by the Board of Trustees in its business judgment,
or must become "financially literate" within a reasonable period of
time after his or her appointment to the Committee.
(c) At least one member of the Committee shall have accounting or related
financial management expertise, as that the Board of Trustees may
interpret that qualification in its business judgment.
B-1
<PAGE>
4. PPR shall provide a "Written Affirmation" to the NYSE at the time of any
changes in the composition of the Committee, as well as on an annual basis
within one month of PPR's annual shareholder meeting regarding:
(a) Any determination that PPR's Board of Trustees has made regarding the
independence of Trustees in accordance with Rule 303.01(B)(3) of the
NYSE Listed Company Manual;
(b) The financial literacy of the Committee members;
(c) The determination that at least one of the Committee members has
accounting or related financial management expertise; and
(d) The annual review and reassessment of the adequacy of the Audit
Committee Charter and the Addendum.
B-2
<PAGE>
APPENDIX C
Text of Proposed Amendments to Provisions of the Trust's Agreement and
Declaration of Trust (language proposed to be deleted is shown in brackets and
language proposed to be added is shown in italics).
Subsection (c) of Section 2 of Article I of the Agreement and Declaration
of Trust is amended to read in its entirety as follows:
(c) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest in the Trust shall be divided
from time to time or, if more than one CLASS OR series of Shares is
authorized by the Trustees, the equal proportionate transferable units into
which each CLASS OR series of shares shall be divided from time to time;
Subsections (g) and (h) of Section 2 of Article I of the Agreement and
Declaration of Trust are amended to read in their entirety, and new subsections
(i) and (j) are added immediately thereafter, as follows:
(g) "Declaration of Trust shall mean this Agreement and Declaration of
Trust as amended or restated from time to time; [and]
(h) "By-laws" shall mean the By-laws of the Trust as amended from time
to time[.];
(I) THE TERM "CLASS" OR "CLASS OF SHARES" REFERS TO THE DIVISION OF
SHARES INTO TWO OR MORE CLASSES AS PROVIDED IN ARTICLE III, SECTION 1
HEREOF; AND
(J) THE TERM "SERIES" OR "SERIES OF SHARES" REFERS TO THE DIVISION OF
SHARES REPRESENTING ANY CLASS INTO TWO OR MORE SERIES AS PROVIDED IN
ARTICLE III, SECTION 1 HEREOF.
Sections 1 and 2 of Article III of the Agreement and Declaration of Trust
are amended to read in their entirety as follows:
SECTION 1. DIVISION OF BENEFICIAL INTEREST. The Shares of the Trust
shall be issued in one or more [series] CLASSES OF SHARES (WHICH CLASSES
MAY BE DIVIDED INTO TWO OR MORE SERIES) as the Trustees may, without
shareholder approval, authorize. SHARES OF EACH SUCH CLASS OR SERIES SHALL
HAVE SUCH PREFERENCES, VOTING POWERS, TERMS OF REDEMPTION, IF ANY, AND
SPECIAL OR RELATIVE RIGHTS OR PRIVILEGES (INCLUDING CONVERSION RIGHTS, IF
ANY) AS THE TRUSTEES MAY DETERMINE AND AS SHALL BE SET FORTH IN THE
BY-LAWS. EXCEPT AS OTHERWISE PROVIDED IN THE BY-LAWS, [E] Each series shall
be preferred over all other series in respect of the assets allocated to
that series. The beneficial interest in each CLASS OR series shall at all
times be divided into Shares, without par value, each of which shall
represent an equal proportionate interest in [the] THAT CLASS OR series
with each other Share of the same CLASS OR series, none having priority or
preference over another. The number of Shares OF EACH CLASS OR SERIES
authorized shall be unlimited, EXCEPT AS THE BY-LAWS MAY OTHERWISE PROVIDE,
AND THE SHARES SO AUTHORIZED MAY BE REPRESENTED IN PART BY FRACTIONAL
SHARES. The Trustees may from time to time divide or combine the Shares OF
ANY CLASS OR SERIES into a greater or lesser number without thereby
changing the proportionate beneficial interests in the CLASS OR series.
SECTION 2. OWNERSHIP OF SHARES. The ownership of Shares shall be
recorded on the books of the Trust or a transfer or similar agent. No
certificates certifying the ownership of Shares shall be issued except as
the Trustees may otherwise determine from time to time. The Trustees may
make such rules as they consider appropriate for the issuance of Share
certificates, the transfer of Shares and similar matters. The record books
of the Trust as kept by the Trust or any transfer or similar agent, as the
case may be, shall be conclusive as to who are the Shareholders of each
CLASS OR series and as to the number of Shares of each CLASS OR series held
from time to time by each Shareholder.
The second paragraph of Section 3 of Article III of the Agreement and
Declaration of Trust is amended to read in its entirety as follows:
C-1
<PAGE>
All consideration received by the Trust for the issue or sale of
Shares of each CLASS OR series, together with all income, earnings,
profits, and proceeds thereof, including any proceeds derived from the
sales, exchange or liquidation thereof, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be,
shall irrevocably belong to the CLASS OR series of Shares with respect to
which the same were received by the Trust for all purposes, subject only to
the rights of creditors, and shall be so handled upon the books of account
of the Trust and are herein referred as "assets of" such CLASS OR series.
Section 1 of Article IV of the Agreement and Declaration of Trust is
amended to read in its entirety as follows:
SECTION 1. ELECTION. The persons who shall act as Trustees until the
first annual meeting or until their successors are duly chosen and qualify
are the initial Trustees executing this Agreement and Declaration of Trust
or any counterpart thereof. The number of Trustees shall be as provided in
the [Bylaws] BY-LAWS or as fixed from time to time by the Trustees. The [s]
Shareholders may elect Trustees at any meeting of Shareholders called by
the Trustees for that purpose [.] BY A VOTE, AND IN ACCORDANCE WITH THE
PROCEDURES, AS SET FORTH IN THE BY-LAWS. Each Trustee shall serve during
the continued lifetime of the Trust until he dies, resigns or is removed,
or, if sooner, until the next meeting of Shareholders called for the
purpose of electing Trustees and the election and qualification of his
successor. Any Trustee may resign at any time by written instrument signed
by him and delivered to any officer of the Trust, to each other Trustee or
to a meeting of the Trustees. Such resignation shall be effective upon
receipt unless specified to be effective at some other time. Except to the
extent expressly provided in a written agreement with the Trust, no Trustee
resigning and no Trustee removed shall have any right to any compensation
for any period following his resignation or removal, or any right to
damages on account of such removal.
The first paragraph of Section 3 of Article IV of the Agreement and
Declaration of Trust is amended to read in its entirety as follows:
SECTION 3. POWERS. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and they
shall have all powers necessary or convenient to carry out that
responsibility. Without limiting the foregoing, the Trustees may adopt
By-laws not inconsistent with this Declaration of Trust providing for the
conduct of the business of the Trust and may amend and repeal them to the
extent that such By-laws do not reserve that right to the Shareholders[;]
OF ONE OR MORE CLASSES OR SERIES. THE TRUSTEES [they] may enlarge or reduce
their number[,] AND, SUBJECT TO THE VOTING POWER OF ONE OR MORE CLASSES OR
SERIES OF SHARES AS SET FORTH IN THE BY-LAWS, THE TRUSTEES may fill
vacancies in their number, including vacancies caused by enlargement of
their number, and may remove Trustees with or without cause; they may elect
and remove, with or without cause, such officers and appoint and terminate
such agents as they consider appropriate; they may appoint from their own
number, and terminate, any one or more committees consisting of two or more
Trustees, including an executive committee which may, when the Trustees are
not in session, exercise some or all of the power and authority of the
Trustees as the Trustees may determine; they may employ one or more
custodians of the assets of the Trust and may authorize such custodians to
employ subcustodians and to deposit all or any part of such assets in a
system or systems for the central handling of securities, retain a transfer
agent or a Shareholder servicing agent, or both, provide for the
distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to
any such custodian or underwriter.
Subsection (g) of Section 3 of Article IV of the Agreement and Declaration
of Trust is amended to read in its entirety as follows:
(g) To allocate assets, liabilities and expenses of the Trust to a
particular CLASS OR series of Shares or to apportion the same among two or
more CLASSES OR series [, provided that any liabilities or expenses
incurred by a particular series of Shares shall be payable solely out of
the assets of that series];
C-2
<PAGE>
Sections 4 and 5 of Article IV of the Agreement and Declaration of Trust
are amended to read in their entirety as follows:
SECTION 4. PAYMENT OF EXPENSES BY TRUST. The Trustees are authorized
to pay or to cause to be paid out of the principal or income of the Trust,
or partly our of principal and partly out of income, as they deem fair, all
expenses, fees, charges, taxes and liabilities incurred arising in
connection with the Trust, in connection with the management thereof, or in
connection with the financing of the sale of Shares, including, but not
limited to, the Trustees compensation and such expenses and charges for the
services of the Trust's officers, employees, any investment adviser,
manager, or sub-adviser, principal underwriter, auditor, counsel,
custodian, transfer agent, shareholder servicing agent, and such other
agents or independent contractors and such other expenses and charges as
the Trustees may deem necessary or proper to incur, provided, however,
that, EXCEPT AS PROVIDED IN THE BY-LAWS, all expenses, fees, charges, taxes
and liabilities incurred or arising in connection with a particular CLASS
OR series of Shares as determined by the Trustees, shall be payable solely
out of the assets of that CLASS OR series.
SECTION 5. OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the
assets of each CLASS OR series of Shares and of the Trust shall at all
times be considered as vested in the Trustees.
Section 1 of Article VI of the Agreement and Declaration of Trust is
amended to read in its entirety as follows:
SECTION 1. DISTRIBUTIONS. The Trustees may each year, or more
frequently if they so determine, distribute to the Shareholders of [each]
ANY OR ALL CLASSES OR series such income and capital gains relating to such
CLASS OR series, accrued or realized, as the Trustees may determine, after
providing for actual and accrued expenses and liabilities (including such
reserves as the Trustees may establish) determined in accordance with good
accounting practices AND SUBJECT TO THE PREFERENCES, SPECIAL OR RELATIVE
RIGHTS AND PRIVILEGES OF THE VARIOUS CLASSES OR SERIES OF SHARES. The
Trustees shall have full discretion to determine which items shall be
treated as income and which items as capital and their determination shall
be binding upon the Shareholders. Distributions of each year's income of
each CLASS OR series shall be distributed pro rata to Shareholders of a
CLASS OR series in proportion to the number of Shares of such CLASS OR
series held by each of them. Such distributions shall be made in cash or
Shares or a combination thereof as determined by the Trustees. Any such
distributions paid in Shares of a CLASS OR series will be paid at the net
asset value thereof as determined in accordance with the [Bylaws] BY-LAWS.
Section 3 of Article VI of the Agreement and Declaration of Trust is
amended to read in its entirety as follows:
SECTION 3. DIVIDENDS, DISTRIBUTIONS AND REPURCHASES. EXCEPT AS
OTHERWISE PROVIDED IN THE BY-LAWS, [N] No dividend or distribution
(including, without limitation, any distribution paid upon termination of
the Trust or of any CLASS OR series) with respect to, nor any repurchase
of, the Shares of any CLASS OR series shall be effected by the Trust other
than from the assets allocated to such CLASS OR series.
Section 4 of Article VIII of the Agreement and Declaration of Trust is
amended to read in its entirety as follows:
SECTION 4. SHAREHOLDERS. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his or her being
or having been a Shareholder and not because of his or her acts or
omissions or for some other reason, the Shareholder or former Shareholder
(or his or her heirs, executors, administrators or other legal
representatives or in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled to be held harmless
from and indemnified against all loss and expense arising from such
liability, but only out of the assets of the particular CLASS OR series of
Shares of which he or she is or was a Shareholder.
The first paragraph of Section 1 of Article IX of the Agreement and
Declaration of Trust is amended to read in its entirety as follows:
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SECTION 1. TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE.
All persons extending credit to, contracting with or having any claim
against the Trust or a particular CLASS OR series of Shares shall look only
to the assets of the Trust or the assets allocated to that particular CLASS
OR series of Shares for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, shall be personally
liable therefor. Nothing in this Declaration of Trust shall protect any
Trustee against any liability to which such Trustee would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee.
Section 4 of Article IX of the Agreement and Declaration of Trust is
amended to read in its entirety as follows:
SECTION 4. DURATION AND TERMINATION OF TRUST. Unless terminated as
provided herein, the [t] Trust shall continue without limitation of time.
SUBJECT TO THE VOTING POWERS OF ONE OR MORE CLASSES OR SERIES OF SHARES AS
SET FORTH IN THE BY-LAWS, [T] the Trust may be terminated at any time by
vote of Shareholders holding at least a majority of the Shares of each
CLASS OR series entitled to vote or by the Trustees by written notice to
the Shareholders. Any CLASS OR series of Shares may be terminated at any
time by vote of Shareholders holding at least a majority of the Shares of
such CLASS OR series entitled to vote or by the Trustees by written notice
to the Shareholders of such CLASS OR series.
Upon termination of the Trust or of any one or more CLASS OR series of
Shares, after paying or otherwise providing for all charges, taxes,
expenses and liabilities, whether due or accrued or anticipated, of the
Trust or of the particular CLASS OR series as may be determined by the
Trustees, the Trust shall in accordance with such procedures as the
Trustees consider appropriate reduce the remaining assets to distributable
form in cash or shares or other securities, or any combination thereof, and
distribute the proceeds to the Shareholders of the CLASS OR series
involved, ratably according to the number of Shares of each CLASS OR series
held by the several Shareholders of such CLASS OR series on the date of
termination [.] , EXCEPT TO THE EXTENT OTHERWISE REQUIRED OR PERMITTED BY
THE PREFERENCES AND SPECIAL OR RELATIVE RIGHTS AND PRIVILEGES OF ANY
CLASSES OR SERIES OF SHARES.
Section 7 of Article IX of the Agreement and Declaration of Trust is
amended to read in its entirety as follows:
SECTION 7. AMENDMENTS. EXCEPT TO THE EXTENT THAT THE BY-LAWS OR
APPLICABLE LAW MAY REQUIRE A HIGHER VOTE OR THE SEPARATE VOTE OF ONE OR
MORE CLASSES OR SERIES OF SHARES, [T] This Declaration of Trust may be
amended at any time by an instrument in writing signed by a majority of the
then Trustees when authorized to do so by vote of Shareholders holding a
majority of the Shares of each CLASS OR series entitled to vote, except
that an amendment which shall affect the holders of one or more CLASS OR
series of Shares but not the holders of all outstanding CLASSES OR series
shall be authorized by the vote of the Shareholders holding a majority of
the Shares entitled to vote of each CLASS OR series affected and no vote of
Shareholders of a CLASS OR series not affected shall be required.
Amendments having the purpose of changing the name of the Trust or of
supplying any omission, curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision contained herein
shall not require the authorization by Shareholder vote.
C-4
<PAGE>
APPENDIX D
AMENDMENT TO AMENDED AND RESTATED
INVESTMENT MANAGEMENT AGREEMENT
The INVESTMENT MANAGEMENT AGREEMENT made as of the 7th day of April, 1995,
as amended on the 2nd day of May, 1996, restated on the 7th day of April, 1997,
amended on the 6th day of August, 1998 and restated on the 2nd day of August,
1999, by and between PILGRIM PRIME RATE TRUST, a business trust organized and
existing under the laws of the Commonwealth of Massachusetts (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"), is hereby amended as set forth in this Amendment to the Investment
Management Agreement, which is made as of the _____ day of ________, 2000.
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, 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 Trust and the Manager wish to amend the Investment Management
Agreement as provided below.
NOW, THEREFORE, in consideration of the covenants and the mutual promises
in the Investment Management Agreement, the parties hereto, intending to be
legally bound hereby, mutually agree as follows:
1. Section 8(a) of the Investment Management Agreement is amended by
replacing the language thereof with the following paragraph:
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
Managed Assets of the Trust. For purposes of this Agreement, "Managed
Assets" shall mean the Trust's average daily gross asset value, minus
the sum of the Trust's accrued and unpaid dividends on any outstanding
preferred shares and accrued liabilities (other than liabilities for
the principal amount of any borrowings incurred, commercial paper or
notes issued by the Trust and the liquidation preference of any
outstanding preferred shares).
2. This Amendment shall become effective as of the date indicated
above provided that it has been approved by the shareholders of the Trust
at a meeting held for that purpose.
D-1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and attested by their duly authorized officers, on the day and
year first above written.
PILGRIM PRIME RATE TRUST
Attest: By:
--------------------------- ------------------------------------
Title: Title:
---------------------------- ---------------------------------
PILGRIM INVESTMENTS, INC.
Attest: By:
--------------------------- ------------------------------------
Title: Title:
---------------------------- ---------------------------------
D-2
<PAGE>
APPENDIX E
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>
Position With
Name and Age Pilgrim Investments Principal Occupation During the Last Five Years
------------ ------------------- -----------------------------------------------
<S> <C> <C>
Robert W. Stallings Chairman of the Chairman, Chief Executive Office and President of
(51) Board of Directors Pilgrim Group, Inc. (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);
(41) Chairman, Executive Executive Vice President (since April 1995) and
Vice President and Director of Structured Finance (since April 1998),
Director of Pilgrim Group, Inc.; Director (since December 1994) and
Structured Finance 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 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
(49) Executive Officer (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.
</TABLE>
E-1
<PAGE>
APPENDIX F
FORM OF AMENDED AND RESTATED
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the ___ day of September
2000, 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 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.
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
F-1
<PAGE>
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.
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
F-2
<PAGE>
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
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.
F-3
<PAGE>
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."
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
Attest: By:
--------------------------- ------------------------------------
Title: Title:
---------------------------- ---------------------------------
PILGRIM INVESTMENTS, INC.
Attest: By:
--------------------------- ------------------------------------
Title: Title:
---------------------------- ---------------------------------
F-4
<PAGE>
APPENDIX G
As of May 31, 2000, no person, to the knowledge of management, owned
beneficially or of record more than 5% of the outstanding shares of the Trust,
except as follows:
Type of Percentage of
Name and Address Ownership Trust
---------------- --------- -----
G-1
<PAGE>
PILGRIM PRIME RATE TRUST
The undersigned hereby instructs Robert W. Stallings or James M. Hennessy
(Proxies) to vote the shares held by the undersigned at the Annual Meeting of
Shareholders of Pilgrim Prime Rate Trust to be held at ____ a.m., local time, on
August 25, 2000 at 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004
and at any adjournment thereof, in the manner directed below with respect to the
matters referred to in the Proxy Statement for the Meeting, receipt of which is
hereby acknowledged, and in the Proxies' discretion, upon such other matters as
may properly come before the meeting or any adjournment thereof.
Please vote, sign and date this voting instruction and return it in the enclosed
envelope.
These voting instructions will be voted as specified. If no specification is
made, this voting instruction will be voted FOR all proposals.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE STRONGLY
URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR BALLOT AS SOON AS POSSIBLE. YOUR
VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
Please indicate your vote by an "x" in the appropriate box below.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS.
1. To elect eleven Trustees. For All Against All For all Except Abstain
[ ] [ ] [ ] [ ]
Nominees: Al Burton Walter H. May Robert W. Stallings
Paul S. Doherty Jock Patton John G. Turner
Robert B. Goode, Jr. David W. C. Putnam David W. Wallace
Alan L. Gosule John R. Smith
To withhold authority to vote for any individual nominee, mark the "For All
Except" box and strike through that Nominee's name.
2a. To approve amendments to the Trust's Agreement For Against Abstain
and Declaration of Trust in connection with [ ] [ ] [ ]
the Trust's ability to issue a preferred class
of shares.
2b. To approve amendments to the Trust's fundamental For Against Abstain
investment policies in connection with the [ ] [ ] [ ]
Trust's ability to issue a preferred class of
shares.
2c. To approve amendments to the Investment For Against Abstain
Management Agreement between the Trust and [ ] [ ] [ ]
Pilgrim Investments in connection with the
Trust's ability to issue a preferred class
of shares.
<PAGE>
3. To approve a new Investment Management Agreement For Against Abstain
between the Trust and Pilgrim Investments to [ ] [ ] [ ]
reflect the acquisition of Pilgrim Investments
by ING.
4. To ratify the appointment of KPMG LLP as For Against Abstain
independent auditors for the Trust for the [ ] [ ] [ ]
fiscal year ending February 28, 2001.
5. To transact such other business as may properly For Against Abstain
come before the Meeting of Shareholders or any [ ] [ ] [ ]
adjournments thereof.
This proxy must be signed exactly as your name(s) appears hereon. If as an
attorney, executor, guardian or in some representative capacity or as an officer
of a corporation, please add titles as such. Joint owners must each sign.
------------------------------- -------------------
Signature Date
------------------------------- -------------------
Signature (if held jointly) Date