SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
[X] 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
July 14, 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. 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,
/s/ Robert W. Stallings
ROBERT W. STALLINGS
Chief Executive Officer and President
<PAGE>
PILGRIM PRIME RATE TRUST
40 NORTH CENTRAL AVENUE, SUITE 1200
PHOENIX, ARIZONA 85004
(800) 992-0180
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS 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 8:00 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:
a. An Investment Management Agreement, assuming Proposal 2c is
approved by shareholders;
b. An Investment Management Agreement, assuming Proposal 2c is not
approved by shareholders;
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,
/s/ James M. Hennessy
JAMES M. HENNESSY, Secretary
July 14, 2000
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PILGRIM PRIME RATE TRUST
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS 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 8:00 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:
a. An Investment Management Agreement, assuming Proposal 2c is
approved by shareholders (Proposal 3a);
b. An Investment Management Agreement, assuming Proposal 2c is not
approved by shareholders (Proposal 3b);
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 July 14, 2000.
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) 992-0180.
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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. The address of each Nominee is 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004.
<TABLE>
<CAPTION>
YEAR FIRST BECAME
NAME AND AGE PRINCIPAL OCCUPATION FOR THE LAST FIVE YEARS A BOARD MEMBER
------------ -------------------------------------------- --------------
<S> <C> <C>
Al Burton (72) President of Al Burton Productions for more than the last five 1994
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 (66) President of Doherty, Wallace, Pillsbury and Murphy, P.C., 1999
Attorneys. Mr. Doherty was 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 (69) Retired. Mr. Goode was formerly Chairman of American Direct 1999
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* (59) Partner and Chairman of the Tax Department of Clifford, Chance, 1999
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 (63) Retired. Mr. May was formerly Managing Director and Director of 1999
Marketing for Piper Jaffray, Inc.. Mr. May is also a Director or
Trustee of each of the funds managed by Pilgrim Investments.
</TABLE>
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<TABLE>
<CAPTION>
YEAR FIRST BECAME
NAME AND AGE PRINCIPAL OCCUPATION FOR THE LAST FIVE YEARS A BOARD MEMBER
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<S> <C> <C>
Jock Patton (54) Private Investor. Director of Hypercom Corporation (since January 1995
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 (60) President and Director of F.L. Putnam Securities Company, Inc. and 1999
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.
John R. Smith (76) President of New England Fiduciary Company (since 1991). Mr. 1999
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** (51) Chairman, Chief Executive Officer and President of Pilgrim Group, 1995
Inc. (since December 1994); Chairman, Pilgrim Investments, Inc.
and 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 (since October 1999) 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** (60) Chairman and Chief Executive Officer of ReliaStar Financial Corp. 1999
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.
</TABLE>
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<TABLE>
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YEAR FIRST BECAME
NAME AND AGE PRINCIPAL OCCUPATION FOR THE LAST FIVE YEARS A BOARD MEMBER
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<S> <C> <C>
David W. Wallace (76) Chairman of FECO Engineered Systems, Inc. Mr. Wallace is 1999
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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* An "interested person," as defined in the Investment Company Act of 1940
(the "1940 Act"), 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 1940 Act, 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
seven meetings. Each Trustee attended at least 75% 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.
COMMITTEES
The Board of Trustees has an Audit Committee whose function is to meet with
the independent auditors of the Trust 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 at least 75% 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 the Addendum to the Audit Committee Charter, respectively,
adopted by the Trustees.
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 is an "interested person," as
defined in the 1940 Act, 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 of Trustees 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.
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During the fiscal year ended February 29, 2000, the Nominating Committee met one
time. Each member of the Nominating Committee attended the meeting during the
period in which such Trustee was a member of the Committee.
The Board of Trustees does not have a Compensation Committee.
REMUNERATION OF BOARD MEMBERS AND OFFICERS
The Trust currently pays each Trustee who is not an "interested person" of
Pilgrim Investments 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. Certain of the
Pilgrim Funds had different compensation schedules in place for the Trustees
during portions of 1999.
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.
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 $33,938 (15 boards)
Robert B. Goode, Trustee $3,542 $33,438 (15 boards)
Alan L. Gosule, Trustee (3) $3,542 $32,188 (15 boards)
Mark L. Lipson, Trustee (4) $ 0 $ 0 (15 boards)
Walter H. May, Trustee $3,542 $34,188 (15 boards)
Jock Patton, Trustee $7,595 $49,188 (13 boards)
David W.C. Putnam, Trustee $3,426 $32,688 (15 boards)
John R. Smith, Trustee $3,542 $33,938 (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 $33,938 (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) An "interested person," as defined in the 1940 Act, 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) An "interested person," as defined in the 1940 Act, because of his
affiliation with Pilgrim Investments.
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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 1.
PROPOSAL NO. 2
APPROVAL OF 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 series of preferred shares (any such additional 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.
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 in one or more series 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 credit
facility programs with financial institutions. 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, if
the cost of having a preferred class of shares is less than the cost of
borrowing through an existing credit facility program, and allow the Trust to
increase the amount of leverage used for investment purposes. However, 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.
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 voting rights accorded
preferred shareholders 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
would be 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
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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 dates of issuance, amounts
payable upon redemption or liquidation, certain voting rights, 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 one
or more 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 make 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
dividends 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 to reflect changes in prevailing interest rates, it
is not expected that changes in the Trust's dividend obligations on the
preferred shares would adversely affect in a material respect the dividends
earned by the 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 would 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 practical and
permitted by the terms of such shares.
The Trust intends to 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 one or more classes of shares, including preferred shares, without further
shareholder approval. Shares of a class may also be divided into one or more
series without further shareholder approval. Such broad authorization at this
time of classes or series of shares will provide flexibility to take advantage
of possible future market opportunities and circumstances. Requiring the
shareholders to meet and approve each separate issuance of a class or series
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
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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 senior securities
representing indebtedness, 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 will 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.
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. It is expected that
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 depend on
various factors including market conditions prevailing at the time. The dividend
rate could be reset periodically based on prevailing market prices. As a result,
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.
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Any change in the net asset value of the common shares would be somewhat
greater as a result of the issuance of preferred shares. 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.
VOTING RIGHTS. The voting rights of the outstanding common shares would be
affected upon the issuance of any preferred shares, because the holders of any
preferred shares would have certain class 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
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.
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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.
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).
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The proposed amendments are necessary in order for the Trust to issue a
class of preferred shares.
VOTE REQUIRED
Approval of this Proposal 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
the 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, which
means that Pilgrim Investments would be compensated for managing the proceeds of
a preferred shares offering. However, while the amount of the Trust's assets
subject to Pilgrim Investment's fee will increase, 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
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.
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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 misfeasance, 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. The investment management fees would have been the same if the
proposed amendment to the Investment Management Agreement had been in effect for
the Trust's most recent fiscal year ended February 29, 2000.
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:
AFTER
PROPOSED
CURRENT(1) AMENDMENT(2)
---------- ------------
Investment Management Fees (3) 0.80% 0.80%
Administration Fee (4) 0.25% 0.25%
Other Expenses (5) 0.14% 0.12%
-------- --------
ANNUAL OPERATING EXPENSES 1.19% 1.17%
----------
(1) Expenses calculated as a percentage of the Trust's net assets plus
borrowings. 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 calculated as a percentage of the Trust's Managed Assets. 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
borrowings, assuming a 5% return and where the Trust has borrowed, an investor
would pay the following expenses on a $10,000 investment:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
$ 121 $ 378 $ 654 $1,443
EXAMPLE. Based upon the annual expenses as a percentage of Managed Assets,
assuming 5% return and where the Trust has borrowed and issued a preferred class
of shares, an investor would pay the following expenses on a $10,000 investment:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
$ 119 $ 372 $ 644 $1,420
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 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
PROPOSAL 3a: APPROVAL OF INVESTMENT MANAGEMENT AGREEMENT IF PROPOSAL 2C IS
APPROVED BY SHAREHOLDERS
PROPOSAL 3b: APPROVAL OF INVESTMENT MANAGEMENT AGREEMENT IF PROPOSAL 2C IS NOT
APPROVED BY SHAREHOLDERS
On April 30, 2000, ReliaStar entered into an agreement (the "Transaction")
to be acquired by ING. As a result of this potential change in ownership,
shareholders of the Trust are being asked to approve a new Investment Management
Agreement (the "New Agreement") between the Trust and Pilgrim Investments.
APPROVAL OF THE NEW AGREEMENT IS SOUGHT SO THAT THE MANAGEMENT OF THE TRUST CAN
CONTINUE UNINTERRUPTED AFTER THE TRANSACTION, BECAUSE THE CURRENT INVESTMENT
MANAGEMENT AGREEMENT (THE "CURRENT AGREEMENT") MAY TERMINATE AUTOMATICALLY AS A
RESULT OF THE TRANSACTION.
Shareholders are being asked to vote on two versions of the Trust's
Investment Management Agreement because it is unknown whether Proposal 2c will
be approved by shareholders. In Proposal 3a, shareholders are asked to approve
an Investment Management Agreement as amended by the Amendment proposed in
Proposal 2c of this Proxy Statement. In Proposal 3b, shareholders are asked to
approve an Investment Management Agreement which does not include the Amendment
proposed in Proposal 2c. IF THE SHAREHOLDERS OF A TRUST APPROVE PROPOSAL 2C,
ONLY PROPOSAL 3A WILL BE VOTED UPON AT THE MEETING. IF THE SHAREHOLDERS OF THE
TRUST DO NOT APPROVE PROPOSAL 2C, ONLY PROPOSAL 3B WILL BE VOTED UPON AT THE
MEETING.
The Board of Trustees of the Trust recommends that shareholders vote "FOR"
Proposals 3a and 3b.
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GENERAL INFORMATION
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 April 30, 2000, the total number of shares of ReliaStar
outstanding was 89,502,477.
Pilgrim Investments is expected to remain intact after the Transaction.
Pilgrim Investments does not currently anticipate that there will be any changes
in the investment personnel primarily responsible for the management of the
Trust 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.
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 1940 Act to be an assignment of the Current Agreement (or,
if Proposal 2c has been approved by shareholders, an assignment of the Current
Agreement as amended by the Amendment considered in Proposal 2c). The Current
Agreement provides for its automatic termination upon an assignment.
Accordingly, the New Agreement between Pilgrim Investments and the Trust is
proposed for approval by shareholders of the Trust.
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 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.
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).
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If the shareholders of the Trust should fail to approve the New Agreement,
the Transaction may not be consummated. If the Transaction is not consummated,
Pilgrim Investments will continue to serve as adviser for the Trust under the
Current Agreement.
THE TERMS OF THE NEW AGREEMENT
PROPOSAL 3A. If Proposal 2c is approved, the terms of the New Agreement
would be the same in all respects as that of the Trust's Current Agreement, as
amended by the Amendment described in Proposal 2c. As described in Proposal 2c,
the advisory fee paid to Pilgrim Investments would be equal to 0.80% of the
Trust's Managed Assets. In all other respects the New Agreement would be the
same as the Current Agreement. A Form of the New Agreement of the Trust, which
would be amended to reflect the new advisory fee, is attached as Appendix F to
this Proxy Statement.
PROPOSAL 3B. If Proposal 2c is not approved, the terms of the New Agreement
would be the same in all respects as that of the Current Agreement, except for
the dates. A Form of the New Agreement of the Trust is attached as Appendix F to
this Proxy Statement.
IF THE SHAREHOLDERS OF THE TRUST APPROVE PROPOSAL 2C, ONLY PROPOSAL 3A WILL
BE VOTED UPON AT THE MEETING. IF THE SHAREHOLDERS OF THE TRUST DO NOT APPROVE
PROPOSAL 2C, ONLY PROPOSAL 3B WILL BE VOTED UPON AT THE MEETING.
TERMS OF THE NEW AGREEMENT UNDER BOTH PROPOSAL 3A AND PROPOSAL 3B. The New
Agreement would require 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 would provide investment research and
analysis.
Like the Current Agreement, the New Agreement would provide 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 could be terminated by the Trust without penalty upon not
less than sixty (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 1940 Act).
INFORMATION ABOUT PILGRIM INVESTMENTS
Organized in December 1994, Pilgrim Investments is registered as an
investment adviser with the Securities and Exchange Commission. As of 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.
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<PAGE>
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 met with a representative 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 senior management personnel responsible for
the management of Pilgrim Investments are expected to continue to be responsible
for the management of Pilgrim Investments; (3) that the compensation to be
received by Pilgrim Investments under the New Agreement is the same as the
compensation paid under the Current Agreement; (4) ING America Insurance
Holdings, Inc.'s representation that it will use reasonable best efforts to
assure than an "unfair burden" (as defined in the 1940 Act) is not imposed on
the Trust as a result of the Transaction; (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.
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 in Proposals 3a and 3b, 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 approval of
Proposals 3a and 3b by the Trust's shareholders.
The effectiveness of Proposals 3a and 3b 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. Furthermore, shareholder vote upon Proposals 3a and 3b is
conditioned upon the result of the shareholder vote on Proposal 2c of this Proxy
Statement. If Proposal 2c is approved by shareholders of the Trust, only
Proposal 3a (and not Proposal 3b) shall be voted upon at the Meeting. If
Proposal 2c is not approved by shareholders of the Trust, only Proposal 3b (and
not Proposal 3a) shall be voted upon at the Meeting.
VOTE REQUIRED
Approval of Proposals 3a and 3b 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 3A AND 3B.
17
<PAGE>
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 1940 Act, 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.
THE BOARD OF TRUSTEES OF THE TRUST, INCLUDING A MAJORITY OF THE INDEPENDENT
TRUSTEES, RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL 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 1940 Act, 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 1940 Act, the term "unfair burden" includes any arrangement during the
two-year period after the change in control whereby the investment adviser (or
predecessor or successor adviser), or any interested person of any such adviser,
receives or is entitled to receive any compensation, directly or indirectly,
from the investment company or its security holders (other than fees for bona
fide investment advisory or other services), or from any person in connection
with the purchase or sale of securities or other property to, from, or on behalf
of the investment company (other than bona fide ordinary compensation as
principal underwriter of the investment company). Second, during the three year
period immediately following the change of control, at least 75% of an
investment company's board of directors/trustees must not be "interested
persons" of the investment adviser or the predecessor investment adviser within
the meaning of the 1940 Act.
18
<PAGE>
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 approximately
136,043,412 shares outstanding.
A majority of the outstanding shares of the Trust on the Record Date,
present in person or represented 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.
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 May 31, 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
As of May 31, 2000, no person, to the knowledge of the Trust, owned
beneficially or of record more than 5% of the outstanding shares of the Trust.
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 July 14, 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 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
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<PAGE>
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 Proposals 3a and 3b
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. Proposals will be weighted equally for purposes of cost
allocation.
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.
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 AND AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATION FOR THE LAST FIVE YEARS
------------ ----------------------- --------------------------------------------
<S> <C> <C>
Robert W. Stallings (51) Chief Executive Officer Chairman, Chief Executive Officer and President of
(since April 1995) and Pilgrim Group, Inc. (since December 1994); Chairman,
President and Chief Operating Pilgrim Investments, Inc. and Pilgrim Securities, Inc.
Officer (since December 1999) (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 (since October 1999) 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.
James R. Reis (42) Executive Vice President Director, Vice Chairman (since December 1994), Executive
(since April 1995), Chief Vice President (since April 1995), and Director of Senior
Credit Officer (since June Lending and Structured Finance (since April 1998),
1997) and Assistant Secretary Pilgrim Group, Inc. and Pilgrim Investments, Inc.; a
(since April 1997) Director (since December 1994) and Vice Chairman (since
November 1995), Pilgrim Securities, Inc.; Executive Vice
President (since April 1995) and Assistant Secretary of
each of the other Pilgrim Funds (since May 1997).
Presently serves or has served as an officer or director
of other affiliates of Pilgrim Capital Corporation.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NAME AND AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATION FOR THE LAST FIVE YEARS
------------ ----------------------- --------------------------------------------
<S> <C> <C>
James M. Hennessy (51) Executive Vice President Executive Vice President and Secretary (since October
(since May 1998) and 1999), Pilgrim Capital Corporation and its predecessors
Secretary (since April 1995) (since April 1998); Executive Vice President (since April
1998) and Secretary (since April 1995), Pilgrim Group,
Inc., Pilgrim Securities, Inc. and Pilgrim Investments,
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 (42) Senior Vice President (since Senior Vice President of Pilgrim Investments, Inc. and
April 1995), Treasurer (since Pilgrim Securities, Inc. (since December 1994).
June 1997), and Co-Senior Presently serves or has served as an officer of other
Portfolio Manager (since affiliates of Pilgrim Capital Corporation.
December 1999)
Jeffrey A. Bakalar (42) Senior Vice President (since Senior Vice President of Pilgrim Investments, Inc.
November 1999) and Co-Senior (since November 1999).
Portfolio Manager (since
December 1999)
Michael J. Roland (42) Senior Vice President and Senior Vice President and Chief Financial Officer of
Principal Financial Officer Pilgrim Group, Inc., Pilgrim Investments, Inc., and
(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 Endeavor Group (April 1997 to June 1998).
Robert S. Naka (37) Senior Vice President (since Senior Vice President of Pilgrim Investments, Inc.
November 1999) and Assistant (since November 1999) and Pilgrim Group, Inc. (since
Secretary (since July 1996) August 1999). Senior Vice President and Assistant
Secretary of each of the Pilgrim Funds. Formerly Vice
President of Pilgrim Investments, Inc. (April 1997 -
October 1999) and Pilgrim Group, Inc. (February 1997 -
August 1999). Formerly Assistant Vice President of
Pilgrim Group, Inc. (August 1995 - February 1997).
</TABLE>
21
<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 within a reasonable time before the Trust begins to print and
mail the proxy materials 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.
SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 : 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 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.
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
/s/ James M. Hennessy
JAMES M. HENNESSY, Secretary
July 14, 2000
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
<PAGE>
APPENDIX A
PILGRIM FUNDS
AUDIT COMMITTEE CHARTER
AS AMENDED APRIL 27, 2000
The Audit Committees of each of the Board of Trustees/Directors 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 on 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.
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-1
<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), (j), (k) and (l) 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) "STATEMENT" SHALL MEAN THE STATEMENT ESTABLISHING AND FIXING THE
RIGHTS AND PREFERENCES OF AUCTION RATE CUMULATIVE PREFERRED SHARES;
(J) 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;
(K) 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; AND
(L) THE "1940 ACT" SHALL MEAN THE INVESTMENT COMPANY ACT OF 1940.
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. SUBJECT TO THE FOREGOING, 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 OR THE STATEMENT ESTABLISHING THE TERMS OF ANY
SUCH CLASS OR SERIES; PROVIDED, HOWEVER, THAT TO THE EXTENT REQUIRED BY THE
1940 ACT NO SUCH SERIES SHALL HAVE A PREFERENCE OR PRIORITY OVER ANY OTHER
SERIES WITHIN ITS CLASS UPON THE DISTRIBUTION OF ASSETS OR IN RESPECT OF
PAYMENT OF DIVIDENDS; AND PROVIDED, FURTHER, THE BY-LAWS OR THE STATEMENT
SHALL SET FORTH SUCH OTHER TERMS AND CONDITIONS AS MAY BE REQUIRED BY THE
1940 ACT WITH RESPECT TO STOCK WHICH IS A SENIOR SECURITY. [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
C-1
<PAGE>
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 deleted in its entirety as follows:
[All consideration received by the Trust for the issue or sale of
Shares of each 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 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 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 AND IN COMPLIANCE WITH THE
PROVISIONS OF THE 1940 ACT WITH RESPECT TO A CLASS OF SENIOR SECURITIES
WHICH ARE STOCK TO THE EXTENT IT REQUIRES THAT A SPECIFIED NUMBER OF
TRUSTEES BE ELECTED BY THE HOLDERS OF THE CLASS OF SENIOR SECURITIES. 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.
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<PAGE>
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];
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 all expenses, fees, charges, taxes and liabilities incurred or arising
in connection with a particular series of Shares as determined by the
Trustees, shall be payable solely out of the assets of that series.]
SECTION 5. OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the
assets of [each 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
series] such income and capital gains [relating to such 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, AS PERMITTED BY THE 1940 ACT. 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 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 distribution
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
deleted in its entirety as follows:
[SECTION 3. DIVIDENDS, DISTRIBUTIONS AND REPURCHASES. No dividend or
distribution (including, without limitation, any distribution paid upon
termination of the Trust or of any series) with respect to, nor any
repurchase of, the Shares of any series shall be effected by the Trust
other than from the assets allocated to such 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
C-3
<PAGE>
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 series of Shares
of which he or she is or was a Shareholder.] TRUST.
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:
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
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.
EXCEPT TO THE EXTENT THAT THE BY-LAWS OR APPLICABLE LAW, INCLUDING THE 1940
ACT, MAY REQUIRE A HIGHER VOTE OR THE SEPARATE VOTE OF ONE OR MORE CLASSES
OR SERIES OF SHARES, [T] The Trust may be terminated at any time by the
vote of Shareholders holding [at least] a majority of the Shares of ALL
CLASSES [each series] entitled to vote, VOTING TOGETHER AS ONE CLASS, or by
the VOTE OF A MAJORITY OF THE Trustees AND by written notice to the
Shareholders. [Any series of Shares may be terminated at any time by vote
of Shareholders holding at least a majority of the Shares of such series
entitled to vote or by the Trustees by written notice to the Shareholders
of such series.]
Upon termination of the Trust [or of any one or more 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] EACH CLASS OR series
[involved], ratably according to the number of Shares of such CLASS OR
series held by the several Shareholders of such CLASS OR series on the date
of termination.
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, INCLUDING THE 1940 ACT, 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 THE
vote of Shareholders holding a majority of the Shares of ALL CLASSES [each
series] entitled to vote, VOTING TOGETHER AS ONE CLASS. [except that an
amendment which shall affect the holders of one or more series of Shares
but not the holders of all outstanding series shall be authorized by the
vote of the Shareholders holding a majority of the Shares entitled to vote
of each series affected and no vote of Shareholders of a 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.
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<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.
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<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 (51) Chairman of the Board of Chairman, Chief Executive Officer and President of Pilgrim
Directors Group, Inc. (since December 1994); Chairman, Pilgrim
Investments, Inc. and 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 (since October
1999) 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.
James R. Reis (42) Director, Vice Chairman, Director, Vice Chairman (since December 1994), Executive Vice
Executive Vice President President (since April 1995), and Director of Senior Lending
and Director of Senior Structured Finance (since April 1998), Pilgrim Group, Inc. and
Lending and Structured Pilgrim Investments, Inc.; a Director (since December 1994) and
Finance Vice Chairman (since November 1995), Pilgrim Securities, Inc.;
Executive Vice President (since April 1995) and Assistant
Secretary of each of the other Pilgrim Funds (since May 1997).
Presently serves or has served as an officer or director of
other affiliates of Pilgrim Capital Corporation.
Stanley D. Vyner (49) President and Chief Executive Vice President of most of the Pilgrim Funds (since
Executive Officer July 1996). Formerly Chief Executive Officer (November 1993 -
December 1995) HSBC Asset Management Americas, Inc.
</TABLE>
E-1
<PAGE>
APPENDIX F
FORM OF AMENDED AND RESTATED
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the ___ day of ________
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 E T H:
WHEREAS, the Trust is a closed-end management investment company,
registered as such under the Investment Company Act of 1940; and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, and is engaged in the business of supplying
investment advice and investment management services, as an independent
contractor; and
WHEREAS, the Trust desires to retain the Manager to render investment
advice and investment management services to the Trust pursuant to the terms and
provisions of this Agreement, and the Manager is interested in furnishing said
advice and services.
NOW, THEREFORE, in consideration of the covenants and the mutual promises
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
mutually agree as follows:
1. The Trust hereby employs the Manager and the Manager hereby accepts
such employment, to render investment advice and investment management
services with respect to the assets of the Trust, subject to the
supervision and direction of the Trust's Board of Trustees. The Manager
shall, as part of its duties hereunder (i) furnish the Trust with advice
and recommendations with respect to the investment of the Trust's assets
and the purchase and sale of its portfolio securities, including the taking
of such other steps as may be necessary to implement such advice and
recommendations, (ii) furnish the Trust with reports, statements and other
data on securities, economic conditions and other pertinent subjects which
the Trust's Board of Trustees may request, (iii) permit its officers and
employees to serve without compensation as Trustees of the Trust if elected
to such positions and (iv) in general superintend and manage the investment
of the Trust, subject to the ultimate supervision and direction to the
Trust's Board of Trustees.
2. The Manager shall use its best judgment and efforts in rendering
the advice and services to the Trust as contemplated by this Agreement.
3. The Manager shall, for all purposes herein, be deemed to be an
independent contractor, and shall, unless otherwise expressly provided and
authorized, have no authority to act for or represent the Trust in any way,
or in any way be deemed an agent for the Trust. It is expressly understood
and agreed that the services to be rendered by the Manager to the Trust
under the provisions of this Agreement are not to be deemed exclusive, and
the Manager shall be free to render similar or different services to others
so long as its ability to render the services provided for in this
Agreement shall not be impaired thereby.
4. The Manager agrees to use its best efforts in the furnishing of
such advice and recommendations to the Trust, in the preparation of reports
and information, and in the management of the Trust's assets, all pursuant
to this Agreement, and for this purpose the Manager shall, at its own
expense, maintain such staff and employ or retain such personnel and
consult with such other persons as it shall from time to time determine to
be necessary to the performance of its obligations under this Agreement.
Without limiting the generality of the foregoing, the staff and personnel
of the Manager shall be deemed to include persons employed or retained by
the Manager to furnish statistical, research, and other factual
F-1
<PAGE>
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 Association of Securities Dealers, Inc.) as of the date of
this Agreement. This Agreement shall not obligate the Manager or such
affiliate (i) to act pursuant to the foregoing requirement under any
circumstances in which they might reasonably believe that liability might
be imposed upon them as a result of so acting, or (ii) to institute legal
or other proceedings to collect fees which may be considered to be due from
others to it as a result of such a tender, unless the 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
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<PAGE>
the last day of the first month of the next succeeding fiscal year. For the
purposes of this paragraph, the term "fiscal year" shall exclude the
portion of the current fiscal year which shall have elapsed prior to the
date hereof and shall include the portion of the then current fiscal year
which shall have elapsed at the date of termination of this Agreement.
(d) The management fee payable by the Trust hereunder shall be
reduced to the extent that an affiliate of the Manager has actually
received cash payments of tender offer solicitation fees less certain costs
and expenses incurred in connection therewith, as referred to in Paragraph
6 herein.
9. The Manager agrees that neither it nor any of its officers or
employees shall take any short position in the capital stock of the Trust.
This prohibition shall not prevent the purchase of such shares by any of
the officers and directors or bona fide employees of the Manager or any
trust, pension, profit-sharing or other benefit plan for such persons or
affiliates thereof.
10. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Trust Indenture or applicable statute or
regulation, or to relieve or deprive the Board of Trustees of the Trust of
its responsibility for and control of the conduct of the affairs of the
Trust.
11. (a) In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the
part of the Manager, the Manager shall not be subject to liability to the
Trust or to any shareholder of the Trust for any act or omission in the
course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any
investment by the Trust.
(b) Notwithstanding the foregoing, the Manager agrees to
reimburse the Trust for any and all costs, expenses, and counsel and
trustees' fees reasonably incurred by the Trust in the preparation,
printing and distribution of proxy statements, amendments to its
Registration Statement, holding of meetings of its shareholders or
trustees, the conduct of factual investigations, any legal or
administrative proceedings including any applications for exemptions or
determinations by the Securities and Exchange Commission which the Trust
incurs as the result of action or inaction of the Manager or any of its
shareholders where the action or inaction necessitating such expenditures
(i) is directly or indirectly related to any transaction or proposed
transaction in the shares or control of the Manager or its affiliates (or
litigation related to any pending or proposed future transaction in such
shares or control) which shall have been undertaken without the prior
express approval of the Trust's Board of Trustees; or (ii) is within the
sole control of the Manager or any of its affiliates or any of their
officers, directors, employees or shareholders. The Manager shall not be
obligated pursuant to the provisions of this Subparagraph 11(b), to
reimburse the Trust for any expenditures related to 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
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<PAGE>
Agreement, and shall continue in effect from year to year thereafter so
long as such continuation is specifically approved at least annually by (i)
the Board of Trustees of the Trust or by the vote of a majority of the
outstanding voting securities of the Trust, and (ii) the vote of a majority
of the Trustees of the Trust who are not parties to this Agreement or
interested persons thereof, cast in person at a meeting called for the
purpose of voting on such approval.
13. This Agreement may be terminated at any time, without payment of
any penalty, by the Board of Trustees of the Trust or by vote of a majority
of the outstanding voting securities of the Trust, upon sixty (60) days
written notice to the Manager, and by the Manager upon sixty (60) days
written notice to the Trust.
14. This Agreement shall terminate automatically in the event of any
transfer or assignment thereof, as defined in the Investment Company Act of
1940, as amended.
15. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule, or otherwise, the remainder of this
Agreement shall not be affected thereby.
16. The term "majority of the outstanding voting securities" of the
Trust shall have the meaning as set forth in the Investment Company Act of
1940, as amended.
17. In consideration of the execution of this Agreement, the Manager
on behalf of its sole shareholder, Pilgrim Group, Inc., hereby grants to
the Trust the right to use the name "Pilgrim" as part of its name. The
Manager on behalf of its sole shareholder, Pilgrim Group, Inc., reserves
the right to grant to others the right to use the name "Pilgrim" including
to any other investment company. The Trust agrees that in the event this
Agreement is terminated, the Trust shall immediately take such steps as are
necessary to amend its name and remove the reference to "Pilgrim."
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>
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 8:00 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.
To vote, mark blocks below in blue or black ink as follows:
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
1. To elect eleven Trustees. For All Withhold All For All Except
[ ] [ ] [ ]
Nominees: 01) Al Burton 05) Walter H. May 09) Robert W. Stallings
02) Paul S. Doherty 06) Jock Patton 10) John G. Turner
03) Robert B. Goode 07) David W. C. Putnam 11) David W. Wallace
04) Alan L. Gosule 08) John R. Smith
TO WITHHOLD AUTHORITY TO VOTE, MARK "FOR ALL EXCEPT" AND WRITE THE
NOMINEE'S NUMBER ON THE LINE BELOW.
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2a. To approve amendments to the Trust's Agreement and For Against Abstain
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 investment For Against Abstain
policies in connection with the Trust's ability to issue a [ ] [ ] [ ]
preferred class of shares.
2c. To approve amendments to the Investment Management Agreement For Against Abstain
between the Trust and Pilgrim Investments in connection with [ ] [ ] [ ]
the Trust's ability to issue a preferred class of shares.
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3a. To approve a new Investment Management Agreement between the For Against Abstain
Trust and Pilgrim Investments to reflect the acquisition of [ ] [ ] [ ]
Pilgrim Investments by ING, assuming Proposal 2c has been
approved by shareholders.
3b. To approve a new Investment Management Agreement between the For Against Abstain
Trust and Pilgrim Investments to reflect the acquisition of [ ] [ ] [ ]
Pilgrim Investments by ING, assuming Proposal 2c has not been
approved by shareholders.
4. To ratify the appointment of KPMG LLP as independent For Against Abstain
auditors for the Trust for the fiscal year ending February [ ] [ ] [ ]
28, 2001.
5. To transact such other business as may properly come before For Against Abstain
the Meeting of Shareholders or any adjournments thereof. [ ] [ ] [ ]
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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.
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Signature Date
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Signature (if held jointly) Date
