INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the ___ day of _______, 1999,
between Pilgrim Advisory Funds, Inc., a Maryland corporation, (hereinafter
called the "Fund"), and Pilgrim Investments, Inc. a Delaware corporation
(hereinafter called the "Manager").
WITNESSETH
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Fund is authorized to issue shares of beneficial interest in
separate series with each such series representing interests in a separate
portfolio of securities and other assets;
WHEREAS, the Fund currently proposes to offer shares in three series, may
offer shares of additional series in the future, and currently intends to offer
shares of additional series in the future;
WHEREAS, the Fund desires to avail itself of the services of the Manager
for the provision of advisory, management, administrative, and other services
for the Fund; and
WHEREAS, the Manager is willing to render such services to the Fund;
NOW, THEREFORE, in consideration of the premises, the promises and mutual
covenants herein contained, it is agreed between the parties as follows:
1. APPOINTMENT. The Fund hereby appoints the Manager, subject to the
direction of the Board of Directors, for the period and on the terms set forth
in this Agreement, to provide advisory, management, administrative, and other
services, as described herein, with respect to each series of the Fund
(individually and collectively referred to herein as "Series"). The Manager
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
In the event the Fund establishes and designates additional series with
respect to which it desires to retain the Manager to render advisory services
hereunder, it shall notify the Manager in writing. If the Manager is willing to
render such services, it shall notify the Fund in writing, whereupon such
additional series shall become a Series hereunder.
2. SERVICES OF THE MANAGER. The Manager represents and warrants that it is
registered as an investment adviser under the Investment Advisers Act of 1940
and will maintain such registration for so long as required by applicable law.
Subject to the general supervision of the Board of Directors of the Fund, the
Manager shall provide the following advisory, management, administrative, and
other services with respect to the Series:
(a) Provide general, overall advice and guidance with respect to the
Series and provide advice and guidance to the Fund's Directors, and oversee the
management of the investments of the Series and the composition of each Series'
portfolio of securities and investments, including cash, and the purchase,
retention and disposition thereof, in accordance with each Series' investment
objective or objectives and policies as stated in the Fund's current
registration statement, which management shall be provided by others selected by
the Manager and approved by the Board of Directors as provided below or directly
by the Manager as provided in Section 3 of this Agreement;
(b) In the event that the Manager wishes to select others to render
investment management services, the Manager shall analyze, select and recommend
for consideration by the Fund's Board of Directors investment advisory firms
(however organized) to provide investment advice to one or more of the Series,
and, at the expense of the Manager, engage (which engagement may also be by the
Fund) such investment advisory firms to render investment advice and manage the
investments of such Series and the composition of each such Series' portfolio of
securities and investments, including cash, and the purchase, retention and
disposition thereof, in accordance with the Series' investment objective or
objectives and policies as stated in the Fund's current registration statement
(any such firms approved by the Board of Directors and engaged by the Fund
and/or the Manager are referred to herein as "Portfolio Managers");
(c) Periodically monitor and evaluate the performance of the Portfolio
Managers with respect to the investment objectives and policies of the Series;
(d) Monitor the Portfolio Managers for compliance with the investment
objective or objectives, policies and restrictions of each Series, the 1940 Act,
Subchapter M of the Internal Revenue Code, and if applicable, regulations under
such provisions, and other applicable law;
(e) If appropriate, analyze and recommend for consideration by the
Fund's Board of Directors termination of a contract with a Portfolio Manager
under which the Portfolio Manager provided investment advisory services to one
or more of the Series;
(f) Supervise Portfolio Managers with respect to the services that
such Portfolio Managers provide under respective portfolio management agreements
("Portfolio Management Agreements"), although the Manager is not authorized,
except as provided in Section 3 of the Agreement, directly to make
determinations with respect to the investment of a Series' assets or the
purchase or sale of portfolio securities or other investments for a Series;
(g) Provide all supervisory, management, and administrative services
reasonably necessary for the operation of the Series other than the investment
advisory services performed by the Portfolio Managers, including, but not
limited to, (i) coordinating all matters relating to the operation of the
Series, including any necessary coordination among the Portfolio Managers,
custodian, transfer agent, dividend disbursing agent, and portfolio accounting
agent (including pricing and valuation of the Series' portfolios), accountants,
attorneys, and other parties performing services or operational functions for
the Fund; (ii) maintaining or supervising the maintenance by third parties
selected by the Manager of such books and records of the Fund and the Series as
may be required by applicable federal or state law; (iii) preparing or
supervising the preparation by third parties selected by the Manager of all
federal, state, and local tax returns and reports relating to the Series
required by applicable law; (iv) preparing and filing and arranging for the
distribution of proxy materials and periodic reports to shareholders of the
Series as required by applicable law; (v) preparing and arranging for the filing
of registration statements and other documents with the Securities and Exchange
Commission (the "SEC") and other federal and state regulatory authorities as may
be required by applicable law; (vi) taking such other action with respect to the
Fund as may be required by applicable law in connection with the Series,
including without limitation the rules and regulations of the SEC and other
regulatory agencies; and (vii) providing the Fund, at the Manager's expense,
with adequate personnel, office space, communications facilities, and other
facilities necessary for operation of the Series as contemplated in this
Agreement.
(h) Render to the Board of Directors of the Fund such periodic and
special reports as the Board may reasonably request; and
-2-
(i) Make available its officers and employees to the Board of
Directors and officers of the Fund for consultation and discussions regarding
the administration and management of the Series and services provided to the
Fund under this Agreement.
3. INVESTMENT MANAGEMENT AUTHORITY. In the event the Manager wishes to
render investment management services directly to a Series, then with respect to
any such Series, the Manager, subject to the supervision of the Fund's Board of
Directors, will provide a continuous investment program for the Series'
portfolio and determine the composition of the assets of the Series' portfolio,
including determination of the purchase, retention, or sale of the securities,
cash, and other investments contained in the portfolio. The Manager will provide
investment research and conduct a continuous program of evaluation, investment,
sales, and reinvestment of the Series' assets by determining the securities and
other investments that shall be purchased, entered into, sold, closed, or
exchanged for the Series, when these transactions should be executed, and what
portion of the assets of the Series should be held in the various securities and
other investments in which it may invest, and the Manager is hereby authorized
to execute and perform such services on behalf of the Series. To the extent
permitted by the investment policies of the Series, the Manager shall make
decisions for the Series as to foreign currency matters and make determinations
as to, and execute and perform, foreign currency exchange contracts on behalf of
the Series. The Manager will provide the services under this Agreement in
accordance with the Series' investment objective or objectives, policies, and
restrictions as stated in the Fund's Registration Statement filed with the SEC,
as amended. Furthermore:
(a) The Manager will manage the Series so that each will qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code. In
managing the Series in accordance with these requirements, the Manager shall be
entitled to receive and act upon advice of counsel to the Fund or counsel to the
Manager.
(b) The Manager will conform with the 1940 Act and all rules and
regulations thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the Fund's Board of
Directors, and the provisions of the Registration Statement of the Fund under
the Securities Act of 1933 and the 1940 Act, as supplemented or amended.
(c) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Series as well as any other
investment advisory clients, the Manager may, to the extent permitted by
applicable laws and regulations, but shall not be obligated to, aggregate the
securities to be so sold or purchased with those of its other clients where such
aggregation is not inconsistent with the policies set forth in the Registration
Statement. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the Manager in
a manner that is fair and equitable in the judgment of the Manager in the
exercise of its fiduciary obligations to the Fund and to such other clients.
(d) In connection with the purchase and sale of securities of the
Series, the Manager will arrange for the transmission to the custodian for the
Fund on a daily basis, of such confirmation, trade tickets, and other documents
and information, including, but not limited to, Cusip, Cedel, or other numbers
that identify securities to be purchased or sold on behalf of the Series, as may
be reasonably necessary to enable the custodian to perform its administrative
and recordkeeping responsibilities with respect to the Series. With respect to
portfolio securities to be purchased or sold through the Depository Trust
Company, the Manager will arrange for the prompt transmission of the
confirmation of such trades to the Fund's custodian.
-3-
(e) The Manager will assist the custodian or portfolio accounting
agent for the Fund in determining, consistent with the procedures and policies
stated in the Registration Statement for the Fund, the value of any portfolio
securities or other assets of the Series for which the custodian or portfolio
accounting agent seeks assistance or review from the Manager. The Manager will
monitor on a daily basis the determination by the custodian or portfolio
accounting agent for the Fund of the value of portfolio securities and other
assets of the Series and the determination of net asset value of the Series;
provided, however, that the Manager shall, in the absence of bad faith, have no
liability whatsoever for any mistakes or errors of judgment in providing the
foregoing valuation-related services.
(f) The Manager will make available to the Fund, promptly upon
request, all of the Series' investment records and ledgers as are necessary to
assist the Fund to comply with requirements of the 1940 Act and the Investment
Advisers Act of 1940, as well as other applicable laws. The Manager will furnish
to regulatory authorities having the requisite authority any information or
reports in connection with such services which may be requested in order to
ascertain whether the operations of the Fund are being conducted in a manner
consistent with applicable laws and regulations.
(g) The Manager will regularly report to the Fund's Board of Directors
on the investment program for the Series and the issuers and securities
represented in the Series' portfolio, and will furnish the Fund's Board of
Directors with respect to the Series such periodic and special reports as the
Directors may reasonably request.
(h) In connection with its responsibilities under this Section 3, the
Manager is responsible for decisions to buy and sell securities and other
investments for the Series' portfolio, broker-dealer selection, and negotiation
of brokerage commission rates. The Manager's primary consideration in effecting
a security transaction will be to obtain the best execution for the Series,
taking into account the factors specified in the Prospectus and/or Statement of
Additional Information for the Fund, which include price (including the
applicable brokerage commission or dollar spread), the size of the order, the
nature of the market for the security, the timing of the transaction, the
reputation, experience and financial stability of the broker-dealer involved,
the quality of the service, the difficulty of execution, execution capabilities
and operational facilities of the firms involved, and the firm's risk in
positioning a block of securities. Accordingly, the price to the Series in any
transaction may be less favorable than that available from another broker-dealer
if the difference is reasonably justified, in the judgment of the Manager in the
exercise of its fiduciary obligations to the Fund, by other aspects of the
portfolio execution services offered. Subject to such policies as the Board of
Directors may determine and consistent with Section 28(e) of the Securities
Exchange Act of 1934, the Manager shall not be deemed to have acted unlawfully
or to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Series to pay a broker-dealer for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the Manager
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
Manager's overall responsibilities with respect to the Series and to its other
clients as to which it exercises investment discretion. To the extent consistent
with these standards and in accordance with Section 11(a) of the Securities and
Exchange Act of 1934 and Rule 11a2-2(T) thereunder, the Manager is further
authorized to allocate the orders placed by it on behalf of the Series to the
Manager if it is registered as a broker-dealer with the SEC, to an affiliated
broker-dealer, or to such brokers and dealers who also provide research or
statistical material or other services to the Series, the Manager or an
affiliate of the Manager. Such allocation shall be in such amounts and
proportions as the Manager shall determine consistent with the above standards,
and the Manager will report on said allocation regularly to the Board of
Directors of the Fund indicating the broker-dealers to which such allocations
have been made and the basis therefor.
-4-
4. CONFORMITY WITH APPLICABLE LAW. The Manager, in the performance of its
duties and obligations under this Agreement, shall act in conformity with the
Registration Statement of the Fund and with the instructions and directions of
the Board of Directors of the Fund and will conform to, and comply with, the
requirements of the 1940 Act and all other applicable federal and state laws and
regulations.
5. EXCLUSIVITY. The services of the Manager to the Fund under this
Agreement are not to be deemed exclusive, and the Manager, or any affiliate
thereof, shall be free to render similar services to other investment companies
and other clients (whether or not their investment objectives and policies are
similar to those of any of the Series) and to engage in other activities, so
long as its services hereunder are not impaired thereby.
6. DOCUMENTS. The Fund has delivered properly certified or authenticated
copies of each of the following documents to the Manager and will deliver to it
all future amendments and supplements thereto, if any:
(a) certified resolution of the Board of Directors of the Fund
authorizing the appointment of the Manager and approving the form of this
Agreement;
(b) the Registration Statement as filed with the SEC and any
amendments thereto; and
(c) exhibits, powers of attorney, certificates and any and all other
documents relating to or filed in connection with the Registration Statement
described above.
7. RECORDS. The Manager agrees to maintain and to preserve for the periods
prescribed under the 1940 Act any such records as are required to be maintained
by the Manager with respect to the Series by the 1940 Act. The Manager further
agrees that all records which it maintains for the Series are the property of
the Fund and it will promptly surrender any of such records upon request.
8. EXPENSES. During the term of this Agreement, the Manager will pay all
expenses incurred by it in connection with its activities under this Agreement,
except such expenses as are assumed by the Fund under this Agreement and such
expenses as are assumed by a Portfolio Manager under its Portfolio Management
Agreement. The Manager further agrees to pay all fees payable to the Portfolio
Managers, executive salaries and expenses of the Directors and officers of the
Fund who are employees of the Manager or its affiliates, and office rent of the
Fund. The Fund shall be responsible for all of the other expenses of its
operations, including, without limitation, the management fee payable hereunder;
brokerage commissions; interest; legal fees and expenses of attorneys; fees of
auditors, transfer agents and dividend disbursing agents, and custodians; the
expense of obtaining quotations for calculating each Fund's net asset value;
taxes, if any, and the preparation of the Fund's tax returns; cost of stock
certificates and any other expenses (including clerical expenses) of issue,
sale, repurchase or redemption of shares; expenses of registering and qualifying
shares of the Fund under federal and state laws and regulations (including the
salary of employees of the Manager engaged in the registering and qualifying of
shares of the Fund under federal and state laws and regulations or a pro-rata
portion of the salary of employees to the extent so engaged); expenses of
printing and distributing reports, notices and proxy materials to existing
shareholders; expenses of printing and filing reports and other documents filed
-5-
with governmental agencies; expenses of annual and special shareholder meetings;
expenses of printing and distributing prospectuses and statements of additional
information to existing shareholders; fees and expenses of Directors of the Fund
who are not employees of the Manager or any Portfolio Manager, or their
affiliates; membership dues in the Investment Company Institute; insurance
premiums; and extraordinary expenses such as litigation expenses. To the extent
the Manager incurs any costs or performs any services which are an obligation of
the Fund, as set forth herein, the Fund shall promptly reimburse the Manager for
such costs and expenses. To the extent the services for which the Fund is
obligated to pay are performed by the Manager, the Manager shall be entitled to
recover from the Fund only to the extent of its costs for such services.
9. COMPENSATION. For the services provided by the Manager pursuant to this
Agreement, the Fund will pay to the Manager a monthly fee, in arrears, equal to
1/12th of the corresponding percentage of the average daily net assets of each
Series during the month. For purposes of the immediately preceding sentence, the
corresponding percentages are as follows:
Pilgrim MidCap Value fund 1.00%
Pilgrim LargeCap Leaders Fund 1.00%
Pilgrim Asia-Pacific Equity Fund 1.25%
Payment of the fee will be due by the 10th day of the following month. Payment
of the above fees shall be in addition to any amount paid to the Manager for the
salary of its employees engaged in registering and qualifying shares of the Fund
under federal and state law as provided in Section 8. The fee will be
appropriately pro-rated to reflect any portion of a calendar month that this
Agreement is not in effect between us.
10. LIABILITY OF THE MANAGER. The Manager may rely on information
reasonably believed by it to be accurate and reliable. Except as may otherwise
be required by the 1940 Act or the rules thereunder, neither the Manager nor its
stockholders, officers, directors, employees, or agents shall be subject to, and
the Fund will indemnify such persons from and against, any liability for, or any
damages, expenses, or losses incurred in connection with, any act or omission
connected with or arising out of any services rendered under this Agreement,
except by reason of willful misfeasance, bad faith, or gross negligence in the
performance of the Manager's duties, or by reason of reckless disregard of the
Manager's obligations and duties under this Agreement. Except as may otherwise
be required by the 1940 Act or the rules thereunder, neither the Manager nor its
stockholders, officers, directors, employees, or agents shall be subject to, and
the Fund will indemnify such persons from and against, any liability for, or any
damages, expenses, or losses incurred in connection with, any act or omission by
a Portfolio Manager or any of the Portfolio Manager's stockholders or partners,
officers, directors, employees, or agents connected with or arising out of any
services rendered under a Portfolio Management Agreement, except by reason of
willful misfeasance, bad faith, or gross negligence in the performance of the
Manager's duties under this Agreement, or by reason of reckless disregard of the
Manager's obligations and duties under this Agreement.
11. CONTINUATION AND TERMINATION. This Agreement shall become effective on
the date first written above, subject to the condition that the Fund's Board of
Directors, including a majority of those Directors who are not interested
persons (as such term is defined in the 0000 Xxx) of the Manager, and the
shareholders of each Series, shall have approved this Agreement. Unless
terminated as provided herein, the Agreement shall continue in full force and
effect for two (2) years from the effective date of this Agreement, and shall
continue from year to year thereafter with respect to each Series so long as
such continuance is specifically approved at least annually (i) by the vote of a
majority of the Board of Directors of the Fund, or (ii) by vote of a majority of
the outstanding voting shares of the Fund (as defined in the 1940 Act), and
-6-
provided continuance is also approved by the vote of a majority of the Board of
Directors of the Fund who are not parties to this Agreement or "interested
persons" (as defined in the 0000 Xxx) of the Fund or the Manager, cast in person
at a meeting called for the purpose of voting on such approval. This Agreement
may not be amended in any material respect without a majority vote of the
outstanding voting shares (as defined in the 1940 Act).
However, any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 0000 Xxx) of a Series shall be effective
to continue this Agreement with respect to such Series notwithstanding (i) that
this Agreement has not been approved by the holders of a majority of the
outstanding shares of any other Series or (ii) that this Agreement has not been
approved by the vote of a majority of the outstanding shares of the Fund, unless
such approval shall be required by any other applicable law or otherwise. This
Agreement may be terminated by the Fund at any time, without the payment of any
penalty, by vote of a majority of the entire Board of Directors of the Fund or
by a vote of a majority of the outstanding voting shares of the Fund, or with
respect to a Series, by vote of a majority of the outstanding voting shares of
such Series, on sixty (60) days' written notice to the Manager, or by the
Manager at any time, without the payment of any penalty, on sixty (60) days'
written notice to the Fund. This Agreement will automatically and immediately
terminate in the event of its "assignment" (as described in the 1940 Act).
12. USE OF NAME. It is understood that the name "Pilgrim America
Investments, Inc." or any derivative thereof (including the name "Pilgrim" and
the phrase "Pilgrim America") or logo associated with that name is the valuable
property of the Manager and its affiliates, and that the Fund and/or the Series
have the right to use such name (or derivative or logo) only so long as this
Agreement shall continue with respect to such Fund and/or Series. Upon
termination of this Agreement, the Fund (or Series) shall forthwith cease to use
such name (or derivative or logo) and, in the case of the Fund, shall promptly
amend its Articles of Incorporation to change its name (if such name is included
therein).
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.
14. APPLICABLE LAW.
(a) This Agreement shall be governed by the laws of the State of
Arizona, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or any
rules or order of the SEC thereunder.
(b) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
(c) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
-7-
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PILGRIM ADVISORY FUNDS, INC.
By:
------------------------------------
Title
----------------------------------
PILGRIM INVESTMENTS, INC.
By:
------------------------------------
Title
----------------------------------
-8-
