SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PILGRIM AMERICA PRIME RATE TRUST
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Pilgrim America Prime Rate Trust
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 992-0180
June 12, 1998
Dear Shareholder:
We are pleased to enclose the Notice and Proxy Statement for the Annual
Meeting of Shareholders of Pilgrim America Prime Rate Trust (the "Trust") to be
held at 10:00 a.m., local time, on August 6, 1998 at the offices of the Trust
(the "Meeting"). Formal notice of the Meeting appears on the next page,
followed by the proxy statement. Please take the time to read the Proxy
Statement and cast your vote, since it covers matters that are important to the
Trust and to you as a shareholder.
At the Meeting, you will be asked to consider and vote on the following
matters:
* To elect six trustees to serve until their successors are elected
and qualified.
* To approve a change to a fundamental investment restriction of
the Trust that would expand the types of loans in which the Trust
may invest, consistent with evolving changes in the syndicated
loan market.
* To approve a proposed amendment to the Trust's investment
management agreement with Pilgrim America Investments, Inc.
* To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Trust for the fiscal year ending February 28,
1999.
* To transact such other business as may properly come before the
Annual Meeting of Shareholders or any adjournments thereof.
The Trustees of the Trust have concluded that the proposals are in the
best interests of the Trust and its shareholders and recommend that you vote
FOR each of the proposals, which are described in more detail in the enclosed
Proxy Statement.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. TO
AVOID THE ADDED COST OF FOLLOW-UP SOLICITATIONS AND POSSIBLE ADJOURNMENTS OF
THE MEETING, 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 5,
1998.
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
Chairman of the Board
Pilgrim America Prime Rate Trust
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 992-0180
Notice of Annual Meeting of Shareholders of
Pilgrim America Prime Rate Trust
to be Held on August 6, 1998
To the Shareholders:
An Annual Meeting of Shareholders of the Pilgrim America Prime Rate Trust
(the "Trust") will be held on August 6, 1998 at 10:00 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 six trustees to serve until their successors are elected
and qualified.
2. To approve a change to a fundamental investment restriction of
the Trust.
3. To approve a proposed amendment to the Trust's investment
management agreement with Pilgrim America Investments, Inc.
4. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Trust for the fiscal year ending February 28,
1999.
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 8, 1998 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 Hennessy
JAMES M. HENNESSY, Secretary
June 12, 1998
Pilgrim America Prime Rate Trust
PROXY STATEMENT
Annual Meeting of Shareholders of Pilgrim America Prime Rate Trust
to be held on August 6, 1998
This Proxy Statement is being furnished by the Board of Trustees of
Pilgrim America 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 (the "Meeting") of the Trust to be held on Thursday, August 6,
1998, at 10:00 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 six trustees to serve until their successors are elected and
qualified (Proposal 1);
2. To approve a change to a fundamental investment restriction of the
Trust that would expand the types of loans in which the Trust may
invest, consistent with evolving changes in the syndicated loan
market (Proposal 2);
3. To approve an Amendment to the Investment Management Agreement
between the Trust and Pilgrim America Investments, Inc. ("PAII" or
the "Investment Manager") that increases the investment management
fee paid by the Trust (Proposal 3);
4. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Trust for the fiscal year ending February 28, 1999
(Proposal 4);
5. To transact such other business as may properly come before the
Annual Meeting of Shareholders or any adjournments thereof.
Voting Rights
Each share of beneficial interest of the Trust (each a "Share,"
collectively the "Shares") is entitled to one vote. Shareholders of the Trust
at the close of business on June 8, 1998 (the "Record Date") will be entitled
to be present and give voting instructions for the Trust at the Meeting with
respect to their Shares owned as of the Record Date. As of June 8 1998, there
were 117,684,509 Shares outstanding and entitled to vote as of such Record
Date, and the Trust had total net assets of $1,094,648,837.
A majority of the outstanding Shares of the Trust on the Record Date,
represented in person or by proxy, must be present to constitute a quorum for
the transaction of the Trust's business at the Meeting.
A plurality of the votes cast at the Meeting is required for the election
of the Trustee nominees (Proposal 1). Approval of Proposals 2 and 3 require a
"Majority Vote." For purposes of this requirement, a "Majority Vote" shall mean
a "majority of the outstanding voting securities" of the Trust as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"), i.e., (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, whichever is less. A
majority of the votes cast at the Meeting, whether present or represented by
proxy, is required for the ratification of independent auditors (Proposal 4).
Expenses
The Trust will pay the expenses incurred by the Trust in connection with
this Notice and Proxy Statement and the Meeting, including the printing,
mailing, solicitation and vote tabulation expenses, legal fees, and out of
pocket expenses.
For information on the proxy solicitation process and adjournments of the
Meeting please see "GENERAL INFORMATION" below.
1
PROPOSAL NO. 1
ELECTION OF SIX TRUSTEES TO SERVE UNTIL THEIR SUCCESSORS ARE
ELECTED AND QUALIFIED
At the Meeting, six Trustees will be elected to serve as Trustees, each to
serve until his or her successor is duly elected and qualified. All of the
nominees are currently Trustees. All of the nominees were last elected to the
Board of Trustees at an Annual Meeting of Shareholders held on June 24, 1997.
Each nominee has consented to serve as a Trustee if elected; however, should
any nominee become unavailable to accept election, an event not now
anticipated, the persons named in the proxy will vote in their discretion for
another person or persons who may be nominated as Trustee.
The following table sets forth the name of each nominee and certain
additional information.
Year First Became
Nominee Principal Occupation for the Last Five Years a Board Member
- ------- -------------------------------------------- --------------
Mary A. Baldwin, Ph.D. Trustee; Realtor, Coldwell Banker Success Realty 1995
Age 58 (formerly, The Prudential Arizona Realty) for more
than the last five years; Vice President, United States
Olympic Committee (November 1996-Present);
formerly Treasurer, United States Olympic
Committee (November 1992-November 1996);
Director or Trustee of each of the funds managed by
the Investment Manager.
John P. Burke Trustee; Commissioner of Banking, State of 1997
Age 57 Connecticut (January 1995-Present); formerly
President of Bristol Savings Bank (August 1992-
January 1995); formerly President of Security Savings
and Loan (November 1989-August 1992); Director or
Trustee of each of the funds managed by the
Investment Manager.
Al Burton Trustee; President of Al Burton Productions for more 1986
Age 70 than the last five years; formerly Vice President, First
Run Syndication, Castle Rock Entertainment (July
1992-November 1994); Director or Trustee of each of
the funds managed by the Investment Manager.
Bruce S. Foerster* Trustee; President, South Beach Capital Markets 1995
Age 57 Advisory Corporation (January 1995-Present);
Governor, Philadelphia Stock Exchange (October
1997-present); Director of Aurora Capital, Inc. (since
February 1995); Director of 2Connect Express, Inc.
(December 1997-Present); formerly, Director of Mako
Marine International (January 1996-December 1997)
and Managing Director, Equity Syndicate, Lehman
Brothers (June 1992-December 1994); Director
and/or Trustee of each of the funds managed by the
Investment Manager.
Jock Patton Trustee; Private Investor; Director of Artisoft, Inc. 1995
Age 52 (August 1994-Present); formerly, President and
Co-owner, StockVal, Inc. (April 1993-June 1997);
formerly, Partner and Director, Streich, Lang, P.A.
(1972-1993); Director or Trustee of each of the funds
managed by the Investment Manager.
2
Year First Became
Nominee Principal Occupation for the Last Five Years a Board Member
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Robert W. Stallings** Chairman, Chief Executive Officer and Trustee (since 1995
Age 49 April 1995); Chairman, Chief Executive Officer and
President, Pilgrim America Group, Inc. (since
December 1994); Chairman, PAII (since December
1994); Director, Pilgrim America Securities, Inc.
(since December 1994); Chairman, Chief Executive
Officer and President of each of the other Pilgrim
America Funds (since April 1995); Chairman and
Chief Executive Officer, Pilgrim America Capital
Corporation (formerly, Express America Holdings
Corporation) (since August 1990); Director and
officer of other affiliates of Pilgrim America Capital
Corporation.
- ------------
* Mr. Foerster has submitted a letter to the Trust informing it that he will
resign as a Trustee of the Trust on the earlier of September 30, 1998, or
at such time as he becomes associated with a broker-dealer.
** As an officer of the Trust's Investment Manager, Mr. Stallings is an
"interested person" of the Trust, as defined in the 1940 Act.
During the Trust's fiscal year ended February 28, 1998, the Board held six
meetings. Each Trustee attended more than 75% of such meetings during the period
in which such Trustee served as a Trustee.
Committees
The Board has an Audit Committee whose function is to meet with the
independent accountants of the Trust in order to review the scope of the Trust's
audit, the Trust's financial statements and interim accounting controls; and to
meet with Trust management concerning these matters, among other things. This
Committee currently consists of all of the independent trustees (Mary A.
Baldwin, John P. Burke, Al Burton, Bruce S. Foerster and Jock Patton). During
the fiscal year ended February 28, 1998, the Audit Committee met four times.
Each member of the Committee attended more than 75% of such meetings during the
period in which he or she was a member of the Committee.
On November 3, 1997, the Board voted to establish a Nominating Committee
for the Trust for the purpose of considering candidates to fill Independent
Trustee vacancies on the Board. The Nominating Committee currently consists of
Mary A. Baldwin, John P. Burke and Al Burton. The Trust currently does not have
a policy regarding whether the Nominating Committee will consider nominees
recommended by shareholders of the Trust. The Nominating Committee did not meet
during the fiscal year ended February 28, 1998.
3
Remuneration of Board Members and Officers
The Trust pays each "disinterested" Trustee, in addition to out-of-pocket
expenses, the Trust's pro rata share, based on all of the investment companies
in the Pilgrim America Funds, of: (i) an annual retainer of $20,000; (ii)
$1,500 per quarterly and special Board meeting; (iii) $500 per committee
meeting; (iv) $500 per special telephonic meeting; and (v) out-of-pocket
expenses. The pro rata share paid by the Trust is based upon the Trust's
average net assets for the previous quarter as a percentage of the average net
assets of all of the funds managed by the Investment Manager for which the
Board Members serve in common as directors/trustees.
Compensation Table
Fiscal Year Ended February 28, 1998
Aggregate Compensation Total Compensation from Trust and
Name of Person, Position from Trust Fund Family to Trustees(1)
- ------------------------ ---------- --------------------------
Mary A. Baldwin, Trustee(2)(3) .......... $14,616 $28,300 (5 boards)
John P. Burke, Trustee(2)(3) ............ $14,667 $28,400 (5 boards)
Al Burton, Trustee(2)(3) ................ $14,667 $28,400 (5 boards)
Bruce S. Foerster, Trustee(2) ........... $14,667 $28,400 (5 boards)
Jock Patton, Trustee(2) ................. $14,667 $28,400 (5 boards)
Robert W. Stallings, Trustee(4) ......... $ 0 $ 0 (5 boards)
- ------------
(1) The "Fund Family" consists of the following Pilgrim America Funds: Pilgrim
America Masters Series, Inc., which consists of Pilgrim America Masters
Asia-Pacific Equity Fund, Pilgrim America Masters MidCap Value Fund, and
Pilgrim America Masters LargeCap Value Fund; Pilgrim America Investment
Funds, Inc., which consists of Pilgrim America MagnaCap Fund and Pilgrim
America High Yield Fund; Pilgrim Government Securities Income Fund, Inc.;
Pilgrim America Bank and Thrift Fund, Inc.; and Pilgrim America Prime Rate
Trust.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
(4) "Interested person," as defined in the Investment Company Act of 1940, as
amended, because of affiliation with the Investment Manager.
Vote Required
The affirmative vote of the holders of a plurality of the Shares of the
Trust represented at the Meeting, assuming a quorum is present, is required to
approve the election of the nominees.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL NO. 1.
PROPOSAL NO. 2
PROPOSAL TO CHANGE A FUNDAMENTAL INVESTMENT
RESTRICTION OF THE TRUST
The Board of Trustees has approved, subject to shareholder approval, a
change to the Trust's fundamental investment restriction regarding the making
of loans by the Trust. The purpose of the change is to clarify the investment
policies of the Trust and enable the Trust to participate in attractive
investment opportunities in the evolving syndicated loan market which are
consistent with the quality of the loans in which the Trust has historically
invested.
Amendment of Policy Regarding Trust's Investments in Loans
The Trust's current fundamental investment restriction with respect to the
Trust's ability to make loans states the following:
[The Trust may not] make loans of money or property to any person, except
that the Trust (i) may hold Senior Loans in accordance with its investment
objectives and policies; (ii) may lend portfolio instruments; and (iii) may
acquire securities subject to repurchase agreements.
4
As proposed, this fundamental investment restriction would be revised to
read as follows (the revised language is underlined):
[The Trust may not] make loans of money or property to any person, except
that the Trust (i) may make loans to corporations or other business
entities, or enter into leases or other arrangements that have the
characteristics of a loan; (ii) may lend portfolio instruments; and (iii)
may acquire securities subject to repurchase agreements.
Effect of Change in Investment Restriction
The effect of this change in the investment restriction regarding the
making of loans will be to allow the Board, in response to changes in the
syndicated loan market, to expand the types of loans in which the Trust may
invest and the types of borrowers that may be parties to such loans. At a
meeting held on May 4, 1998, the Board approved several such changes to the
investment policies of the Trust, which are discussed below, and which will
become effective upon shareholder approval of the change in the fundamental
investment restriction.
Expanding Permissible Borrowers
Currently, the Trust is permitted to make loans only to U.S. corporations
or corporations domiciled in Canada or U.S. territories and possessions. Since
the Trust's organization, syndicated loans in which the borrower is a business
entity other than a corporation, such as a partnership, limited liability
company or other business entity, have become increasingly common. Loans to
business entities other than corporations may present attractive investment
opportunities for the Trust, while being consistent with the quality of the
corporate loans in which the Trust currently invests. As a result, the Trust
believes it would be beneficial to be able to invest in loans to any form of
business entity, as long as the loans otherwise meet the Trust's requirements
regarding the quality of loans in which it may invest. This change would be
effective only if the recommended change in investment restriction described
above is approved by shareholders.
Expanding the Types of Loans in Which the Trust May Invest
The Trust's current investment restriction limits the types of loans in
which the Trust may invest to Senior Loans. A Senior Loan is a floating-rate
corporate loan that holds the most senior position in the capital structure of
the borrower. Senior Loans are fully collateralized, with assets that the
Investment Manager believes equal or exceed the market value of the principal
amount of the Senior Loan at the time of acquisition. The Trust's investment
policies provide that normally at least 80% of the Trust's assets will be
invested in Senior Loans, while the remaining 20% may be invested in other
investments permitted by the Trust's policies ("Other Investments").
As the syndicated loan market has grown, loan structures have developed
that have many of the qualities of a Senior Loan and are consistent with the
quality of the loans in which the Trust has historically invested, but which
may not have certain security or covenant privileges as typical Senior Loans.
The Trust believes that these loans, which would be treated as Other
Investments, may present attractive investment opportunities for the Trust. If
the proposed change to the Trust's fundamental investment restriction is
approved, the Trust will have the ability to invest in the following types of
loans to the extent described, which were approved by the Board at the May 4,
1998 meeting in response to changes in the syndicate loan market.
Lease Participations -- (Moved to 80% Senior Loan Basket)
A "lease participation" is a participation interest in a lease financing.
While the Trust may currently invest in lease participations, they presently
are treated as Other Investments and, therefore, constitute part of the 20% of
the Trust's assets that may be invested in Other Investments. By changing the
Trust's investment restriction, the Trust would be permitted to treat lease
participations as Senior Loans, and, therefore, would constitute part of the
80% of the Trust's assets normally invested in Senior Loans. This would permit
the Trust to invest more than 20% of its assets in lease participations. The
risks associated with an investment in a lease participation are essentially
the same as the risks of investing in a conventional Senior Loan, which include
the risk that the borrower will default on its obligations, and the risk
5
that in the event of default the collateral could not be readily liquidated.
Under policies adopted by the Board, the Trust invests in lease participations
only where the collateral quality, credit quality of the borrower, and
likelihood of payback are believed by the Investment Manager to be the same as
those applied to conventional Senior Loans.
Hybrid Loans -- (In 20% Basket of Other Investments)
If the change in the fundamental investment restriction is approved, the
Trust will be able to invest in certain types of "hybrid loans" in which it may
not currently invest. Hybrid loans are secured, floating rate loans that
possess some characteristics of Senior Loans. Hybrid loans may provide a
relatively higher yield than conventional Senior Loans. While hybrid loans are
secured, with some hybrid loans the lender may not possess a senior claim to
all of the collateral securing the loan. Therefore, the risk of nonpayment of
interest or loss of principal may be greater than would be the case with
conventional Senior Loans. Other hybrid loans do not contain certain covenants
normally found in conventional Senior Loans, such as covenants requiring the
maintenance of minimum interest coverage ratios. As a result of the absence of
these or other provisions, the lender's negotiation or voting rights in the
event of a default in the hybrid loan may be diminished.
Under the current investment restriction, as described above, the Trust
may invest in some, but not all, types of hybrid loans. If the change in
investment restriction is approved, under investment policies recently adopted
by the Trust's Board of Trustees, the Trust may invest in hybrid loans that
meet credit standards established by the Investment Manager. Hybrid loans
constitute part of the 20% of the Trust's assets that may be invested in Other
Investments, and will not count toward the 80% of the Trust's assets that are
normally invested in Senior Loans.
Subordinated and Unsecured Loans -- (Maximum 5% of Assets Combined --
In 20% Basket of Other Investments)
Currently, the Trust may invest up to 5% of its total assets in
subordinated loans. If this Proposal is approved, the Trust would also have the
ability to invest up to 5% of its total assets in both subordinated and
unsecured loans. Unsecured loans are not secured by any specific collateral of
the borrower. They do not enjoy the security associated with collateralization
and may pose a greater risk of nonpayment of interest or loss of principal than
do secured loans. Under policies recently adopted by the Trust's Board of
Trustees, which would be effective only if this proposal is approved by
shareholders, the Trust will acquire unsecured loans only where PAII believes,
at the time of acquisition, that the Trust would have the right to payment upon
default that is not subordinate to any other creditor.
Under the Trust's current policies, the Trust may invest up to 5% of its
total assets in subordinated loans. Unsecured loans will be added to this 5%
basket of assets, so that the Trust may not invest more than 5% of its total
assets, measured at the time of investment, in any combination of unsecured
loans and subordinated loans. The 5% of total assets that may be invested in
unsecured and subordinated loans constitutes part of the 20% of the Trust's
assets that may be invested in Other Investments, and will not count toward the
80% of the Trust's assets that are normally invested in Senior Loans.
Policy Changes Not Requiring Shareholder Approval
Another policy change approved by the Board of Trustees of the Trust,
which does not require shareholder approval, permits the Trust to accept
guarantees and expanded forms of intangible assets as collateral, including
copyrights, patent rights, and franchise value (the Trust could already accept
trademarks). The Board of Trustees also approved a change in policy that does
not require shareholder approval, which provides that 80% of the Trust's gross
assets, as opposed to 80% of its net assets, may normally be invested in Senior
Loans. This change is intended to reflect the fact that the Trust borrows for
investment purposes, so that the Trust's policy regarding the amount invested
in Senior Loans applies to borrowings.
Trustee Recommendations
The proposal to amend the Trust's fundamental investment restriction
concerning its lending activities was unanimously approved by the Board of
Trustees, including all of the Trustees who are not
6
"interested" persons of the Trust within the meaning of the 1940 Act. In voting
to approve the change, the Trust considered the evolving nature of the
syndicated loan market, the potential benefits to the Trust and its
shareholders of revising the restriction to permit the Trust to invest in loans
other than Senior Loans, and whether the change would increase the number of
attractive investment opportunities available to the Trust.
Vote Required
Assuming a quorum is present, a Majority Vote, as defined above, is
required to approve Proposal 2.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL NO. 2.
PROPOSAL NO. 3
AMENDMENT OF INVESTMENT MANAGEMENT AGREEMENT
PAII serves as Investment Manager to the Trust pursuant to an Investment
Management Agreement between the Trust and PAII. The Investment Management
Agreement was approved by the shareholders of the Trust in April 1995, and an
Amendment to the Agreement was approved on May 2, 1996. The amended agreement
was last approved by the Trust's Board of Trustees, including a majority of the
Trustees who were not parties to the Investment Management Agreement or
interested persons of such parties ("Independent Trustees"), at a meeting held
on February 2, 1998.
On May 4, 1998, a majority of the Board of Trustees, including a majority
of the Independent Trustees, approved an Amendment to the Investment Management
Agreement that increases the investment management fee paid by the Trust to
PAII.
Shareholders of the Trust are being asked to approve the Amendment to the
Investment Management Agreement. Set forth below is a description of the
changes in the fee schedule that would result if the Agreement were approved
(some of which will not take effect until after November 12, 1999, as mentioned
below).
If the Amendment to the Investment Management Agreement is approved by the
Trust's shareholders, the Investment Management Agreement with the Amendment
will continue from year to year, unless earlier terminated, provided that such
continuance is specifically approved at least annually (i) by the Trust's 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
Independent Trustees. In the event that shareholders of the Trust do not
approve the Amendment, PAII would continue to serve as Investment Manager to
the Trust under the current Investment Management Agreement, and the Trustees
of the Trust may consider other possible courses of action to accomplish the
purposes for which the Proposal has been made, subject, as required, to
approval by the shareholders of the Trust. The Investment Management Agreement
and Amendment are attached hereto as Appendix A.
Rate of Compensation Under the Amendment to the Investment Management Agreement
The proposed Amendment changes the investment fee paid to PAII by the
Trust from a tiered fee with breakpoints at specific asset levels, to a flat
fee rate. The following table compares the current fee structure for the Trust
with the proposed fee structure:
Current Fee Proposed Fee
---------------------------------- ------------------------------
Net Assets plus Borrowings Net Assets Plus Borrowings
Rate to Which Rate Applies Rate to Which Rate Applies
- ---- --------------------- ---- ---------------------
0.85% first $700 million 0.80% all assets(1)
0.75% over $700 million to $800 million
0.65% over $800 million(1)
- ------------
(1) PAII has agreed to reduce its management fee until November 12, 1999 to
0.60% on that portion of the Trust's average daily net assets, plus the
proceeds of any outstanding borrowings, in excess of $1.15 billion. This
agreement would remain intact if the Amendment is approved.
7
For the twelve months ended March 31, 1998, the average net assets plus
borrowings of the Trust were $1,387,623,981. At that level of net assets plus
borrowings, the effective investment management fee under the current fee
structure is 0.75% (which is equivalent to 1.01% of the Trust's average daily
net assets). For the fiscal year ended February 28, 1998, PAII received
$10,369,772 in investment management fees from the Trust. At the proposed fee,
the investment management fees paid to PAII for the fiscal year ended February
28, 1998 would have been $10,567,050, a difference of $197,278, representing a
1.9% increase.
Because PAII has agreed to reduce its management fee until November 12,
1999 to 0.60% on that portion of the Trust's average daily net assets, plus the
proceeds of any outstanding borrowings, in excess of $1.15 billion, it is not
expected that the new fee rate will significantly increase the investment
management fee paid by the Trust through November 12, 1999. The table on page
10 illustrates the amount by which the Trust's investment management fee may
increase under the new fee rate after the fee reduction ends on November 12,
1999.
The following table compares the current fees and expenses of the Trust
under the Trust's current fee structure with what they would be under the
proposed fee structure.(1)
Net Assets Net Assets
Plus Borrowings(2) Without Borrowings(3)
---------------------------- ----------------------------
Current Fee Proposed Fee Current Fee Proposed Fee
Structure Structure Structure Structure
--------- --------- --------- ---------
Annual Expenses (as a percentage of net assets
attributable to Common Shares) ................
Management and Administrative Fees(4) ......... 1.23% 1.25% 0.93% 0.94%
Other Operating Expenses(5) ................... 0.31% 0.31% 0.21% 0.21%
---- ---- ---- ----
Total Annual Expenses before Interest .......... 1.54% 1.56% 1.14% 1.15%
Interest Expense on Borrowed Funds ............. 2.56% 2.56% 0.00% 0.00%
---- ---- ---- ----
Total Annual Expenses .......................... 4.10% 4.12% 1.14% 1.15%
==== ==== ==== ====
- ------------
(1) The calculations in the fee table above are based on the Trust's expenses
as a percentage of net assets. Certain expenses of the Trust, such as
management and administrative fees, are calculated on the basis of net
assets plus borrowings. If the Trust's expenses are calculated on the basis
of net assets plus borrowings, the annual expenses would read as follows:
Current Fee Proposed Fee
Structure Structure
--------- ---------
Annual Expenses (as a percentage of net
assets plus borrowings attributable to
Common Shares)
Management and Administrative Fees ......... 0.87% 0.89%
Other Operating Expenses ................... 0.22% 0.22%
---- ----
Total Annual Expenses before Interest
Expense .................................... 1.09% 1.11%
Interest Expense on Borrowed Funds .......... 1.81% 1.81%
---- ----
Total Annual Expenses ....................... 2.90% 2.92%
==== ====
Absent the reduction in the investment management fee on the Trust's net
assets plus borrowings in excess of $1.15 billion, the Management and
Administrative Fees, Total Annual Expenses before Interest, and Total
Annual Expenses in this table would have been 0.88%, 1.10%, and 2.91%,
respectively, under the current fee structure, and 0.93%, 1.15%, and 2.96%,
respectively, under the proposed fee structure.
8
(2) Expenses in this column are calculated based upon the Trust's actual net
assets plus outstanding borrowings as of March 31, 1998 and are shown as a
percentage of net assets. Absent the reduction in the investment management
fee on the Trust's net assets plus borrowings in excess of $1.15 billion,
the Management and Administrative Fees, Total Annual Expenses before
Interest, and Total Annual Expenses in this column would have been 1.25%,
1.56%, and 4.12%, respectively, under the current fee structure, and 1.32%,
1.63%, and 4.19%, respectively, under the proposed fee structure.
(3) Expense ratios in this column are calculated based upon the Trust's actual
net assets as of March 31, 1998 and assume that no borrowings have been
made. As of March 31, 1998, net assets without borrowings did not exceed
$1.15 billion, and as such the fees in this column are not affected by the
fee reduction.
(4) Pursuant to its Administration Agreement with the Trust, Pilgrim America
Group, Inc., the Trust's Administrator, is entitled to receive a fee of
0.15% of the Trust's average daily net assets, plus the proceeds of any
outstanding borrowings, up to $800 million; and 0.10% of the average daily
net assets, plus the proceeds of any outstanding borrowings, in excess of
$800 million.
(5) "Other Operating Expenses" are based on estimated amounts for the current
fiscal year.
The following example compares the fees that a shareholder may pay on a
$1,000 investment under the proposed fee structure compared to those the
shareholder may pay under the Trust's current fee structure over the specified
periods of time, assuming a hypothetical 5% annual rate of return.
Example 1 year 3 years 5 years 10 years
------- ------ ------- ------- --------
You would pay the following Current fee $41 $125 $210 $429
expenses on a $1,000
investment, assuming a 5%
annual return and where the Proposed fee $41 $125 $211 $431
Trust has borrowed.
You would pay the following Current fee $12 $ 36 $ 63 $139
expenses on a $1,000
investment, assuming a 5%
annual return and where the Proposed fee $12 $ 37 $ 63 $140
Trust has not borrowed.
This hypothetical example assumes 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 Trust's Shares. (The foregoing example assumes that no
front-end sales load or other fee is paid at the time of acquisition.)
The foregoing example should not be considered a representation of past or
future expenses, and actual expenses may be greater or less than those shown.
9
Because the proposed fee changes the fee structure from one with
breakpoints at specific asset levels to a fixed fee rate, the increase in the
fee under the proposed fee will be greater at higher asset levels. However,
PAII's voluntary fee reduction through November 12, 1999 for assets above $1.15
billion will limit the increase in the fee through that period. While it is not
possible to predict whether and to what extent the assets of the Trust will
increase, the following table compares the current investment management fee
paid by the Trust to that which would be paid under the proposed fee structure
at the asset levels shown, while giving effect to the voluntary fee reduction
for assets above $1.15 billion through November 12, 1999:
Management Fee as a % of
Net Assets Plus Borrowing Management Fee
------------------------- ----------------------------
Calendar Average Net Assets Current Proposed Current Proposed
Year Plus Borrowings(2) Fee Rate Fee Rate Fee Rate Fee Rate % Increase
- ---- ------------------ -------- -------- -------- -------- ----------
1998 $ 1,554,900,000 0.73% 0.75% $11,404,400 $11,629,400 2.0%
1999(1) $ 1,554,900,000 0.74% 0.75% $11,431,578 $11,738,113 2.7%
$ 1,929,900,000 (3) 0.71% 0.73% $13,706,749 $14,088,798 2.8%
2000 $ 1,554,900,000 0.75% 0.80% $11,606,850 $12,439,200 7.2%
$ 1,929,900,000 (3) 0.73% 0.80% $14,044,350 $15,439,200 9.9%
- ------------
(1) Until November 12, 1999, management fees under both the current fee rate
and the proposed fee rate are accrued at 0.60% on that portion of the
Trust's average daily net assets, plus the proceeds of any outstanding
borrowings, in excess of $1.15 billion. Subsequent to that date, management
fees on that portion of the Trust's net assets plus borrowings in excess of
$1.15 billion would be accrued at 0.65% based on current fee rates or 0.80%
based on the proposed fee rate.
(2) Assumes maximum borrowings of 331|M/3% of the average daily net assets,
plus the proceeds of any outstanding borrowings.
(3) Assumes increase in net assets of $250 million, and subsequent increase in
borrowings of $125 million based on maximum borrowings of 331|M/3% of
average daily net assets, plus the proceeds of any outstanding borrowings.
The additional net assets of $250 million may be raised through the sale of
newly issued Shares of the Trust through currently effective registration
statements.
Reasons for the Amendment
PAII's request for an increase in its fees is the result of several
factors affecting the syndicated loan industry and the evolving nature of the
services provided by PAII to the Trust.
Competitive Factors
PAII has reported to the Trust's Board of Trustees that it competes with
other firms to attract the high quality personnel necessary to attempt to
continue the Trust's performance record. The compensation paid to investment
management, compliance, and other personnel who provide services to PAII on
behalf of the Trust has increased as a result of this competition. In addition,
as the syndicated loan market has grown and developed, to maintain the quality
of service that PAII has provided to the Trust in the past, PAII has increased
and expects to continue to increase its staff devoted to the credit management
and administrative functions of the Trust.
Increasing Complexity of the Syndicated Loan Industry
As the syndicated loan market in which the Trust primarily invests has
grown, new loan structures have developed. Certain of these structures are more
complex than the conventional Senior Loans in which the Trust has traditionally
invested and require more analysis of the specific terms of the loans and the
rights of lenders. This has resulted in a need to devote more staff and
resources to analysis of the loans in which the Trust may invest.
Other Factors
The cost of the technology and support systems used by PAII in connection
with the services it provides the Trust has also been increasing as the Trust
continues its efforts to outperform its competition.
10
Board of Trustees' Analysis and Recommendation
In determining whether or not it was appropriate to approve the Amendment
to the Investment Management Agreement and to recommend approvals to
shareholders, the Board of Trustees, including the Independent Trustees,
considered various matters and materials provided by PAII, including the
factors described above. In addition to the factors mentioned above, the
Independent Trustees considered (1) the nature, quality and scope of the
services provided to the Trust by PAII, including the Trust's performance and
its favorable historical rankings against comparable funds; (2) the necessity
of PAII maintaining and enhancing its ability to retain and attract capable
personnel to serve the Trust; (3) the complexity of research and investment
activities in the syndicated loan market; (4) the performance of PAII in
managing the Trust with respect to its advisory, oversight, management,
administrative, and compliance monitoring services; (5) the effect of the
proposed investment management fee increase on the expense ratio of the Trust;
(6) comparative data to comparable funds as to investment performance,
investment management fees, and as to expense ratios; and (7) the estimated
profitability of PAII under the current Investment Management Agreement,
especially in light of increasing costs, and the effect on estimated
profitability under the increased investment management fee.
After reviewing and analyzing the materials provided by PAII, the Board of
Trustees concluded that the compensation to be paid to PAII under the proposed
Amendment is fair and reasonable. The Board believes that approving the
Amendment to the Investment Management 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 Amendment to the Investment
Management Agreement and voted to recommend its approval by the Trust's
shareholders.
The Other Terms of the Investment Management Agreement
The terms of the Investment Management Agreement other than those related
to the amount of the fee will not be changed by the Amendment.
The Investment Management Agreement requires PAII 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. PAII also provides investment research and analysis.
Liability of the Investment Manager. The Investment Management Agreement
provides that PAII is not subject to liability to the Trust, or to any
shareholder of the Trust, for any act or omission in the course of, or
connected with, rendering services under the Investment Management Agreement or
for any losses that may be sustained in the purchase, holding or sale of any
security by the Trust, except by reason of willful malfeasance, bad faith,
gross negligence or reckless disregard of its obligations and duties under the
Investment Management Agreement.
Termination. The Investment Management Agreement will terminate
automatically in the event of its assignment. In addition, it may be terminated
by PAII 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
PAII.
Information Concerning PAII
PAII, which was organized in December 1994, is registered as an investment
adviser with the Securities and Exchange Commission. PAII serves as investment
adviser to seven other registered investment companies (or series thereof) as
well as privately managed accounts. As of May 31, 1998, PAII had total assets
under management of approximately $4.3 billion
PAII is a wholly-owned subsidiary of Pilgrim America Group, Inc., which
itself is a wholly-owned subsidiary of Pilgrim America Capital Corporation
("PACC") (NASDAQ: PACC) (formerly, Express America Holdings Corporation). PACC
is a holding company that through its subsidiaries is engaged in the financial
services business, focusing on providing investment advisory, administrative
and distribution services to open-end and closed-end investment companies and
other institutional investors.
11
PAII 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 B to this proxy statement for a list of the directors and
principal executive officers of PAII.
For the fiscal year ended February 28, 1998, the Trust paid $1,778,473 in
administrative fees to Pilgrim America Group, Inc., which is an affiliate of
PAII.
Vote Required
The proposal to approve the Amendment to the Investment Management
Agreement requires approval by a Majority Vote.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL NO. 3.
PROPOSAL NO. 4
RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC AUDITORS
At a meeting of the Board held on May 4, 1998, the Board, including a
majority of trustees who are not "interested persons" as defined in the 1940
Act, as well as the trustees who were members of the Audit Committee, selected
the accounting firm of KPMG Peat Marwick LLP ("KPMG") to act as the independent
auditors of the Trust for the fiscal year ending February 28, 1999.
KPMG has served as independent auditors for the Trust with respect to its
financial statements for the fiscal years ending February 29, 1996, February
28, 1997 and February 28, 1998. A different auditing firm served as independent
auditors for the Trust with respect to its financial statements for the fiscal
year ending February 28, 1995 and prior years. The Board selected KPMG after
considering that firm's experience as independent auditors to the Trust and to
other investment companies.
KPMG are independent auditors and have no direct financial or material
indirect financial interest in the Trust. Representatives of KPMG are not
expected to be at the Meeting but have been given the opportunity to make a
statement if they wish, and will be available should any matter arise requiring
their presence.
The Board's selection is submitted to the shareholders for ratification.
Vote Required
The affirmative vote of the holders of a majority of the shares of the
Trust represented at the meeting, assuming a quorum is present, is required for
the ratification of the selection of independent auditors.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL NO. 4.
12
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.
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 June 15, 1998.
Shareholders of this Trust whose shares of Common Stock 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 PAII 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 if the Trust has not yet received the shareholder's vote. Authorization to
permit SCC to execute proxies may be obtained by telephonic or electronically
transmitted instructions from shareholders of the Trust. In taking telephonic
instructions, SCC will follow procedures designed to ensure that the identity
of the shareholder casting the vote is accurately determined and that the
voting instructions of the shareholder are accurately determined. SCC is
permitted to answer questions about the process, but is not permitted to
recommend to the shareholders how to vote, other than to read any
recommendation set forth in the proxy statement. SCC will record the
shareholder's instructions on the card. Within 72 hours, SCC will send the
shareholder a letter or mailgram to confirm the shareholder's vote and asking
the shareholder to call SCC immediately if the shareholder's instructions are
not correctly reflected in the confirmation. The costs associated with such
solicitation will be paid by the Trust, although the Investment Manager or its
affiliates shall bear the expense of any solicitation activities by their
employees.
If any shareholder wishes to participate in the meeting of shareholders,
but does not wish to give his or her proxy by telephone, the shareholder may
still submit the proxy card originally sent with the proxy statement or attend
in person. Should shareholders require additional information regarding the
proxy or replacement proxy cards, they may contact SCC toll-free at
1-800-733-8481, extension 491.
A shareholder may revoke a proxy at any time prior to its use by filing
with the Trust a written revocation or duly executed proxy bearing a later
date. In addition, any shareholder who attends the Meeting in person may vote
by ballot at the Meeting, thereby canceling any proxy previously given. The
persons named in the accompanying proxy will vote as directed by the proxy, but
in the absence of voting directions in any proxy that is signed and returned,
they intend to vote FOR each of the proposals and may vote at their discretion
with respect to other matters not now known to the Board of Trustees or the
Trust that may be presented at the Meeting.
Adjournments
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. In determining whether to adjourn the
Meeting, the following factors may be considered: the nature of the Proposals
that are the subject of the Meeting, the percentage of votes actually cast, the
nature of any further solicitation and the information to be provided to
shareholders with respect to the reasons for the solicitation. Any adjournment
will require the affirmative vote of a majority of those Shares represented at
the Meeting in person or by proxy. 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.
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 the abstention or
13
non-vote will be deemed present at the Meeting for purposes of determining a
quorum. However, abstentions and broker non-votes will not be deemed
represented at the Meeting for purposes of calculating the vote on any matter.
As a result, with respect only to matters requiring the affirmative vote of a
majority of the total outstanding shares, an abstention or broker non-vote will
have the same effect as a vote against such matters.
Investment Manager and Distributor
Pilgrim America Investments, Inc., whose address is 40 North Central
Avenue, Suite 1200, Phoenix, Arizona 85004, is the Investment Manager of the
Trust. Pilgrim America Group, Inc., whose address is 40 North Central Avenue,
Suite 1200, Phoenix, Arizona 85004, is the Administrator of the Trust. Pilgrim
America Securities, Inc., whose address is 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004 generally serves as Distributor for the Trust.
Executive Officers of the Trust
Name Position with the Trust Principal Occupation for the Last Five Years
- ---- ----------------------- --------------------------------------------
Howard Tiffen President, Chief Formerly Managing Director of various divisions
(Age 50) Operating Officer (since of Bank of America (and its predecessor,
June 1997) and Senior Continental Bank) 1982-1995).
Portfolio Manager
(since December 1995)
James R. Reis Executive Vice Director, Vice Chairman (since December 1994)
(Age 40) President, Chief Credit Executive Vice President (since April 1995),
Officer and Assistant Pilgrim America Group, Inc. ("PAGI") and PAII;
Secretary (since April a Director (since December 1994), Vice Chairman
1995 (since November 1995) and Assistant Secretary
(since January 1995), Pilgrim America Securities,
Inc. ("PASI"); Executive Vice President and
Assistant Secretary of each of the Pilgrim America
Funds (since April 1995); Chief Financial Officer
(since December 1993), Vice Chairman and
Assistant Secretary (since April 1993) and former
President (May 1991-December 1993), PACC.
Presently serves or has served as an officer or
director of other affiliates of PACC.
James M. Hennessy Executive Vice Executive Vice President (since April 1998) and
(Age 49) President, Chief Secretary (since April 1995), PACC, Executive
Financial Officer (since Vice President and Treasurer (since April 1998)
April 1998) and and Secretary (since April 1995), PAGI, and PAII;
Secretary (since April Executive Vice President (since April 1998) and
1995) Secretary (since April 1995) PASI; Executive Vice
President, Principal Financial Officer (since May
1998) and Secretary (since April 1995) of each of
the Pilgrim America Funds. Formerly Senior Vice
President of the Trust (April 1995-April 1998).
Presently serves or has served as an officer of
other affiliates of PACC.
Daniel A. Norman Senior Vice President, Senior Vice President and Secretary of PAII (since
(Age 40) Treasurer, and Assistant December 1994), Senior Vice President (since
Portfolio Manager November 1995), Treasurer and Chief Financial
(since April 1995) Officer (since April 1997) of PASI. Formerly an
officer of other affiliates of PACC.
Robert S. Naka Vice President (since Vice President, PAII (since April 1997) and PAGI
(Age 34) May 1997) and (since February 1997); Vice President and
Assistant Secretary Assistant Secretary of each of the Pilgrim America
(since July 1996) Funds; Formerly Assistant Vice President (August
1995-February 1997), PAGI and Operations
Manager (April 1992-April 1995), Pilgrim Group,
Inc.
14
To the knowledge of the Trust, as of May 15, 1998, no current Trustee of
the Trust owns 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.
Shareholder Proposals
It is anticipated that the next annual meeting of the Trust will be held
in June 1999. Any proposals of shareholders that are intended to be presented
at the Trust's next annual meeting must be received at the Trust's principal
executive offices by January 7, 1999 and must comply with all other legal
requirements in order to be included in the Trust's proxy statement and form of
proxy for that meeting.
Reports to Shareholders
The Trust will furnish, without charge, a copy of the Annual Report and
the most recent Semi-Annual Report regarding the Trust on request. Requests for
such reports should be directed to Pilgrim America at 40 North Central Avenue,
Suite 1200, Phoenix, Arizona 85004 or to the Trust at
(800) 992-0180.
Section 16(a) Beneficial Ownership Reporting Compliance
U.S. securities laws require that the Trust's shareholders owning more
than 10% 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 Exchange Act. Officers,
directors and greater than ten percent shareholders are required by Exchange
Act regulations 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 Company or written representation from certain reporting persons that no
form 5's were required for those persons, the Trust believes that during the
fiscal year ended February 28, 1998 all officers, directors, and greater than
ten-percent beneficial owners complied with the applicable Section 16 (a)
filing requirements except for the following: Jeffrey Bakalar and Thomas C.
Hunt, Assistant Portfolio Managers of the Trust, filed Form 3's, and Mr. Tiffen
filed two Form 4's reporting two transactions, subsequent to the required
dates.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED,
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
/s/ James Hennessy
JAMES M. HENNESSY, Secretary
June 12, 1998
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
15
APPENDIX A
AMENDMENT TO 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 and restated on the 7th day of April,
1997, by and between PILGRIM AMERICA PRIME RATE TRUST (formerly Pilgrim Prime
Rate Trust), a business trust organized and existing under the laws of the
Commonwealth of Massachusetts (hereinafter called the "Trust"), and PILGRIM
AMERICA 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 , 1998.
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, 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 average daily net
assets of the Trust, plus the proceeds of any outstanding borrowings.
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.
A-1
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 AMERICA PRIME RATE TRUST
Attest:__________________________ By:________________________________________
Title:___________________________ Title:_____________________________________
PILGRIM AMERICA INVESTMENTS, INC.
Attest:__________________________ By:________________________________________
Title:___________________________ Title:_____________________________________
A-2
AMENDED AND RESTATED
INVESTMENT MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT made as of the
7th day of April, 1995, as amended and restated on the 7th day of April, 1997,
by and between PILGRIM AMERICA PRIME RATE TRUST, (formerly Pilgrim Prime Rate
Trust) a Massachusetts Business Trust (hereinafter called the "Trust"), and
PILGRIM AMERICA INVESTMENTS, INC., a corporation organized and existing under
the laws of the State of Delaware (hereinafter called the "Manager").
W I T N E S S T H:
WHEREAS, the Trust is a closed-end management investment company,
registered as such under the Investment Company Act of 1940; and
WHEREAS, the Trust's name was changed to Pilgrim America Prime Rate Trust
on April 12, 1996; 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 of 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
A-3
Manager shall be deemed to include persons employed or retained by the
Manager to furnish statistical, research, and other factual information,
advice regarding economic factors and trends, information with respect to
technical and scientific developments, and such other information, advice
and assistance as the Manager may desire and request.
5. The Trust will from time to time furnish to the Manager detailed
statements of the investments and assets of the Trust and information as to
its investment objectives and needs, and will make available to the Manager
such financial reports, proxy statements, legal and other information
relating to its investments as may be in the possession of the Trust or
available to it and such information as the Manager may reasonably request.
6. Whenever the Manager has determined that the Trust should tender
securities pursuant to a "tender offer solicitation" the Manager shall
designate an affiliate as the "tendering dealer" so long as it is legally
permitted to act in such capacity under the Federal securities laws and
rules thereunder and the rules of any securities exchange or association of
which such affiliate may be a member. Such affiliated dealer shall not be
obligated to make any additional commitments of capital, expenses or
personnel beyond that already committed (other than normal periodic fees or
payments necessary to maintain its corporate existence and membership in
the National Associations of Securities Dealers, Inc.) as of the date of
this Agreement. This Agreement shall not obligate the Manager or such
affiliate (i) to act pursuant to the foregoing requirement under any
circumstances in which they might reasonably believe that liability might
be imposed upon them as a result of so acting, or (ii) to institute legal
or other proceedings to collect fees which may be considered to be due from
others to it as a result of such a tender, unless the Trust shall enter
into an Agreement with such affiliate to reimburse it for all expenses
connected with attempting to collect such fees, including legal fees and
expenses and that portion of the compensation due to their employees which
is attributable to the time involved in attempting to collect such fees.
7. The Manager shall bear and pay the costs of rendering the services to
be performed by it under this Agreement. The Trust shall be responsible for
all other expenses of its operation, including, but not limited to,
expenses incurred in connection with the sale, issuance, registration, and
transfer of its shares; fees of its custodian, transfer and shareholder
servicing agent; salaries of officers and fees and expenses of trustees or
members of any advisory board or committee of the Trust who are not members
of, affiliated with or interested persons of the Manager; the cost of
preparing and printing reports, proxy statements and prospectuses of the
Trust or other communications for distribution to its shareholders; legal,
auditing and accounts fees; the fees of any trade associations of which the
Trust is a member; fees and expenses of registering and maintaining
registration of its shares for sale under Federal and applicable State
securities laws; and all other charges and costs of its operation plus any
extraordinary and non-recurring expenses, except as herein otherwise
prescribed. To the extent the Manager incurs any costs or performs any
services which are an obligation of the Trust, as set forth herein, the
Trust shall promptly reimburse the Manager for such costs and expenses. To
the extent the services for which the Trust is obligated to pay are
performed by the Manager, the Manager shall be entitled to recover from the
Trust only to the extent of its costs for such services.
8. (a) The Trust agrees to pay to the Manager, and the Manager agrees to
accept, as full compensation for all 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 the annual
rate of .85% of the average daily net assets of the Trust, plus the
proceeds of any outstanding borrowings, up to $700 million; at an annual
rate of .75% of the Trust's average daily net assets, plus the proceeds of
any outstanding borrowings, in excess of $700 million up to but not
including $800 million; and at an annual rate of .65% of the Trust's
average daily net assets, plus the proceeds of any outstanding borrowings,
over $800 million.
(b) The management fee shall be accrued daily by the Trust and paid
to the Manager at the end of each calendar month.
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(c) If, for any fiscal year, the expenses borne by the Trust,
including the investment advisory fee, but excluding brokerage
commissions and fees, taxes, interest and to the extent permitted, any
extraordinary expenses such as litigation and non-recurring expenses,
would exceed the expense limitations applicable to the Trust imposed by
the securities laws or regulations thereunder of any state in which the
Trust's shares are qualified for sale, the Manager agrees to reduce its
fee or reimburse the Trust for all such excess expenses exceeding such
limitation no later than the last day of the first month of the next
succeeding fiscal year. For the purposes of this paragraph, the term
"fiscal year" shall exclude the portion of the current fiscal year
which shall have elapsed prior to the date hereof and shall include the
portion of the then current fiscal year which shall have elapsed at the
date of termination of this Agreement.
(d) The management fee payable by the Trust hereunder shall be
reduced to the extent that an affiliate of the Manager has actually
received cash payments of tender offer solicitation fees less certain
costs and expenses incurred in connection therewith, as referred to in
Paragraph 6 herein.
9. The Manager agrees that neither it nor any of its officers or
employees shall take any short position in the capital stock of the Trust.
This prohibition shall not prevent the purchase of such shares by any of
the officers and directors or bona fide employees of the Manager or any
trust, pension, profit-sharing or other benefit plan for such persons or
affiliates thereof.
10. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Trust Indenture or applicable statute or
regulation, or to relieve or deprive the Board of Trustees of the Trust of
its responsibility for and control of the conduct of the affairs of the
Trust.
11. (a) In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the
part of the Manager, the Manager shall not be subject to liability to the
Trust or to any shareholder of the Trust for any act or omission in the
course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any
investment by the Trust.
(b) Notwithstanding the foregoing, the Manager agrees to reimburse
the Trust for any and all costs, expenses, and counsel and trustees'
fees reasonably incurred by the Trust in the preparation, printing and
distribution of proxy statements, amendments to its Registration
Statement, holding of meetings of its shareholders or trustees, the
conduct of factual investigations, any legal or administrative
proceedings including any applications for exemptions or determinations
by the Securities and Exchange Commission which the Trust incurs as the
result of any 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.
A-5
(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 remain in effect until April 7, 1998, unless
sooner terminated as hereinafter provided, and shall continue in effect
from year to year 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 America 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 America 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 AMERICA PRIME RATE TRUST
Attest:__________________________ By:________________________________________
Title:___________________________ Title:_____________________________________
PILGRIM AMERICA INVESTMENTS, INC.
Attest:__________________________ By:________________________________________
Title:___________________________ Title:_____________________________________
A-6
APPENDIX B
Set forth below is the name, address and principal occupation of the
principal executive officer and each director of Pilgrim America Investments,
Inc. The business address of each such person is 40 North Central Avenue, Suite
1200, Phoenix, Arizona 85004.
Name and Position with
Investment Manager Principal Occupation
------------------ --------------------
Robert W. Stallings Chairman, Chief Executive Officer and President
Chairman of the Board of Directors of Pilgrim America Group, Inc.; Director, Pilgrim
America Securities, Inc.; Chairman and Chief
Executive Officer of Pilgrim America Prime Rate
Trust; Chairman, Chief Executive Officer and
President of each of the other Pilgrim America
Funds; Chairman and Chief Executive Officer of
Pilgrim America Capital Corporation (formerly,
Express America Holdings Corporation) ("Pilgrim
America"); Director and Officer of other affiliates
of Pilgrim America
James R. Reis Director, Vice Chairman and Executive Vice
Vice Chairman of the Board of Directors President, Pilgrim America Group, Inc.; Director,
Vice Chairman and Assistant Secretary of Pilgrim
America Securities, Inc.; Executive Vice President,
and Assistant Secretary of all of the Pilgrim
America Funds; Chief Financial Officer, Vice
Chairman and Assistant Secretary, Pilgrim
America; Director and Officer of other affiliates of
Pilgrim America.
Stanley D. Vyner Executive Vice President of most of the Pilgrim
President and Chief Executive Officer America Funds.
B-1
Pilgrim America Prime Rate Trust
PROXY STATEMENT
Annual Meeting of Shareholders of
Pilgrim America Prime Rate Trust
to be held on August 6, 1998
The undersigned owner of Shares of
PILGRIM AMERICA PRIME RATE TRUST Beneficial Interest (the "Shares") of
40 NORTH CENTRAL AVENUE, 1200 Pilgrim America Prime Rate Trust (the
PHOENIX, AZ 85004-4424 "Trust") hereby instructs Robert W.
Stallings or James M. Hennessy (Proxies)
to vote the Shares held by him at the
Annual Meeting of Shareholders of the
Trust to be held at 10:00 a.m., local
time, on August 6, 1998 at the office of
the Trust, 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.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE
FOR THE FOLLOWING PROPOSALS.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
PILPRI KEEP THIS PORTION FOR YOUR RECORDS
- ------------------------------------------------------------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
____________________________________________________________________________________________________________________________________
PILGRIM AMERICA PRIME RATE TRUST
Vote On Trustees For Withhold For All To withhold authority to
1. Election of Trustees: 1) Mary A. Baldwin, 2) John P. Burke, All All Except vote, mark "For All Except"
3) Al Burton, 4) Bruce S. Foerster, 5) Jock Patton, and write the nominee's
6) Robert W. Stallings [ ] [ ] [ ] number on the line below.
___________________________
Vote on Proposals
For Against Abstain
2. To approve a change to a fundamental investment restriction of the Trust that would
expand the types of loans in which the Trust may invest. [ ] [ ] [ ]
3. To approve a proposed amendment to the Trust's investment management agreement with
Pilgrim America Investments, Inc. that increases the investment management fee paid
by the Trust. [ ] [ ] [ ]
4. To ratify the appointment of KPMG Peat Marwick LLP as independent auditors for the
Trust for the fiscal year ending February 28, 1999. [ ] [ ] [ ]
5. To transact such other business as may properly come before the Annual Meeting of
Shareholders or any adjournments thereof. [ ] [ ] [ ]
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION TO THE TRUST, 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.
______________________________________________ ______________________________________________
______________________________________________ ______________________________________________
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
____________________________________________________________________________________________________________________________________