EXPENSE LIMITATION AGREEMENT
PILGRIM MUTUAL FUNDS
EXPENSE LIMITATION AGREEMENT, effective as of ___________, 1999 by and
between Pilgrim Investments, Inc. (the "Investment Manager"), Xxxxxxxx-Xxxxxxxxx
Capital Management (the "Portfolio Manager") and Pilgrim Mutual Funds (the
"Trust"), on behalf of each series of the Trust set forth in SCHEDULE A (each a
"Fund," and collectively, the "Funds").
WHEREAS, the Trust is a Delaware business trust, and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management company of the series type, and each Fund is a series of the Trust;
and
WHEREAS, the Trust and the Investment Manager have entered into an
Investment Management Agreement dated _____________, 1999 ("Management
Agreement"), pursuant to which the Investment Manager provides investment
management services to each Fund for compensation based on the value of the
average daily net assets of each such Fund; and
WHEREAS, the Investment Manager and the Portfolio Manager have entered into
a Portfolio Management Agreement dated ____________, 1999, pursuant to which the
Portfolio Manager provides investment advisory services to each Fund identified
in SCHEDULE B (the "Sub-Advised Funds") for compensation based on the value of
the average daily net assets of each such Sub-Advised Fund; and
WHEREAS, the Trust, the Investment Manager and the Portfolio Manager have
determined that it is appropriate and in the best interests of each Fund and its
shareholders to maintain the expenses of each Fund at a level below the level to
which each such Fund may normally be subject;
NOW THEREFORE, the parties hereto agree as follows:
1. EXPENSE LIMITATION.
1.1. APPLICABLE EXPENSE LIMIT. To the extent that the ordinary operating
expenses incurred by a Fund in any fiscal year, including but not limited to
investment management fees of the Investment Manager, but excluding interest,
taxes, brokerage commissions, other investment-related costs, extraordinary
expenses such as litigation, other expenses not incurred in the ordinary course
of such Fund's business, and expenses of any counsel or other persons or
services retained by the Trust's trustees who are not "interested persons," as
that term is defined in the 1940 Act, of the Investment Manager ("Fund Operating
Expenses"), exceed the Operating Expense Limit, as defined in Section 1.2 below,
such excess amount (the "Excess Amount") shall be the liability of the
Investment Manager.
1.2. OPERATING EXPENSE LIMIT. The Operating Expense Limit in any year with
respect to each Fund shall be the amount specified in SCHEDULE A based on a
percentage of the average daily net assets of each Fund.
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1.3. DURATION OF OPERATING EXPENSE LIMIT. The Operating Expense Limit with
respect to each Fund shall remain in effect until the date specified for that
Fund on SCHEDULE C. Subject to the consent of the Portfolio Manager with respect
to the Sub-Advised Funds, the Investment Manager may extend, but may not during
the term of this Agreement shorten, the duration of the Operating Expense Limit
for any Fund without the consent of the Trust by delivering a revised SCHEDULE C
to the Trust reflecting such extension. Such an extension must continue at the
same Operating Expense Limit amount specified on SCHEDULE A.
1.4. METHOD OF COMPUTATION. To determine the Investment Manager's
obligation with respect to the Excess Amount, each day the Fund Operating
Expenses for each Fund shall be annualized. If the annualized Fund Operating
Expenses for any day of a Fund exceed the Operating Expense Limit of such Fund,
the Investment Manager shall remit to the appropriate Fund or Funds an amount
that, together with the waived or reduced investment management fee, is
sufficient to pay that day's Excess Amount. The Trust may offset amounts owed to
the Funds pursuant to this Agreement against the advisory fee payable to the
Investment Manager.
1.5. YEAR-END ADJUSTMENT. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the investment management fees
waived or reduced and other payments remitted by the Investment Manager to the
Fund or Funds with respect to the previous fiscal year shall equal the Excess
Amount.
2. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS.
2.1. REIMBURSEMENT. If on any day during which the Management Agreement is
in effect, the estimated annualized Fund Operating Expenses of such Fund for
that day are less than the Operating Expense Limit, the Investment Manager shall
be entitled to reimbursement by such Fund of the investment management fees
waived or reduced and other payments remitted by the Investment Manager to such
Fund pursuant to Section 1 hereof (the "Reimbursement Amount") during any of the
previous thirty-six (36) months, to the extent that the Fund's annualized
Operating Expenses plus the amount so reimbursed equals, for such day, the
Operating Expense Limit provided in SCHEDULE A, provided that such amount paid
to the Investment Manager will in no event exceed the total Reimbursement Amount
and will not include any amounts previously reimbursed.
2.2. YEAR-END ADJUSTMENT. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Fund Operating Expenses of a Fund for
the prior fiscal year (including any reimbursement payments hereunder with
respect to such fiscal year) do not exceed the Operating Expense Limit.
3. ALLOCATION BETWEEN INVESTMENT MANAGER AND PORTFOLIO MANAGER WITH RESPECT TO
SUB-ADVISED FUNDS.
3.1. ALLOCATION OF EXCESS AMOUNT. For so long as the fee payable to the
Portfolio Manager under the Portfolio Management Agreement is equal to 50% of
the advisory fee payable to the Investment Manager by a Sub-Advised Fund, the
Portfolio Manager shall waive or reduce its portfolio management fee and/or
promptly remit to the Investment Manager an amount that is sufficient to pay 50%
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of any Excess Amount paid to that Sub-Advised Fund by the Investment Manager
pursuant to Section 1 of this Agreement. The Investment Manager may offset
amounts owed to the Investment Manager pursuant to this Section 3.1 against the
portfolio management fee paid to the Portfolio Manager.
3.2. ALLOCATION OF REIMBURSEMENTS. The Investment Manager shall promptly
remit to the Portfolio Manager 50% of any amount reimbursed to the Investment
Manager by any Sub-Advised Fund pursuant to Section 2 of this Agreement.
3.3. ACCOUNTING. The Trust and the Investment Manager will provide to the
Portfolio Manager reasonable access to the books and records of each for
purposes of confirming the amounts contributed and reimbursed under this
Agreement.
4. TERM AND TERMINATION OF AGREEMENT.
This Agreement shall terminate upon termination of the Investment
Management Agreement. The obligations of the Investment Manager and the
Portfolio Manager pursuant to Section 3 of this Agreement shall terminate upon
termination of the Portfolio Management Agreement. This Agreement may be
terminated by the Trust or, after ___________, 2001, by the Investment Manager,
without payment of any penalty, upon ninety (90) days' prior written notice to
the other party at its principal place of business.
5. MISCELLANEOUS.
5.1. CAPTIONS. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
5.2. INTERPRETATION. Nothing herein contained shall be deemed to require
the Trust or the Funds to take any action contrary to the Trust's Declaration of
Trust or By-Laws, or any applicable statutory or regulatory requirement to which
it is subject or by which it is bound, or to relieve or deprive the Trust's
Board of Trustees of its responsibility for and control of the conduct of the
affairs of the Trust or the Funds.
5.3. DEFINITIONS. Any question of interpretation of any term or provision
of this Agreement, including but not limited to the investment management fee,
the computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Management Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Management Agreement or the 1940 Act.
5.4. AMENDMENTS. This Agreement may be amended only by a written agreement
signed by each of the parties hereto.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
PILGRIM MUTUAL FUNDS
ON BEHALF OF
EACH OF ITS SERIES
By: _______________________________
Name:
Title:
PILGRIM INVESTMENTS, INC.
By: _______________________________
Name:
Title:
XXXXXXXX-XXXXXXXXX CAPITAL MANAGEMENT L.P.
By: _______________________________
Name:
Title:
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SCHEDULE A
OPERATING EXPENSE LIMITS
This Agreement relates to the following Funds of the Trust:
Maximum Operating Expense Limit
NAME OF FUND (AS A PERCENTAGE OF AVERAGE NET ASSETS)
------------ -------------------------------------------
CLASS A CLASS B CLASS C CLASS Q
------- ------- ------- -------
Pilgrim Small Cap Growth Fund 1.95% 2.60% 2.60% 1.50%
Pilgrim Mid Cap Growth Fund 1.60% 2.25% 2.25% 1.25%
Pilgrim Large Cap Growth Fund 1.60% 2.25% 2.25% 1.25%
Pilgrim Convertible Fund 1.60% 2.25% 2.25% 1.25%
Pilgrim Balanced Growth Fund 1.60% 2.25% 2.25% 1.25%
Pilgrim High Quality Bond Fund 0.95% 1.35% 1.35% 0.85%
Pilgrim Emerging Countries Fund 2.25% 2.90% 2.90% 1.90%
Pilgrim Worldwide Growth Fund 1.85% 2.50% 2.50% 1.60%
Pilgrim International Small Cap
Growth Fund 1.95% 2.60% 2.60% 1.65%
Pilgrim International Core
Growth Fund 1.95% 2.60% 2.60% 1.65%
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SCHEDULE B
SUB-ADVISED FUNDS
Pilgrim Small Cap Growth Fund
Pilgrim Mid Cap Growth Fund
Pilgrim Large Cap Growth Fund
Pilgrim Convertible Fund
Pilgrim Emerging Countries Fund
Pilgrim Worldwide Growth Fund
Pilgrim International Small Cap Growth Fund
Pilgrim International Core Growth Fund
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SCHEDULE C
DURATION OF OPERATING EXPENSE LIMITS
The duration of each Operating Expense Limit shall be as follows:
Date on Which Operating
NAME OF FUND Expense Limit Terminates
------------ ------------------------
Pilgrim Small Cap Growth Fund __/__/01
Pilgrim Mid Cap Growth Fund __/__/01
Pilgrim Large Cap Growth Fund __/__/01
Pilgrim Convertible Fund __/__/01
Pilgrim Balanced Growth Fund __/__/01
Pilgrim High Quality Bond Fund __/__/01
Pilgrim Emerging Countries Fund __/__/01
Pilgrim Worldwide Growth Fund __/__/01
Pilgrim International Small Cap Growth Fund __/__/01
Pilgrim International Core Growth Fund __/__/01
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