AMENDED AND RESTATED
EXPENSE LIMITATION AGREEMENT
PILGRIM ADVISORY FUNDS, INC.
EXPENSE LIMITATION AGREEMENT, effective as of August 3, 1998 and
amended and restated as of May 24, 1999, by and between Pilgrim Investments,
Inc. (the "Investment Manager") and Pilgrim Advisory Funds, Inc. (the
"Company"), on behalf of each series of the Company set forth in SCHEDULE A
(each a "Fund," and collectively, the "Funds").
WHEREAS, the Company is a Maryland corporation, 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 Company;
and
WHEREAS, the Company and the Investment Manager have entered into an
Investment Management Agreement dated June 8, 1995 ("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 Company and the Investment 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 class of a Fund in any fiscal year, including
but not limited to investment management fees of the Investment Manager, but
excluding interest, taxes, brokerage commissions, 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 Company's directors 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 maximum Operating Expense Limit in
any fiscal year with respect to each class of each Fund shall be the amount
specified in SCHEDULE A based on a percentage of the average daily net assets of
such class of the Fund.
1.3. METHOD OF COMPUTATION. To determine the Investment Manager's
obligation with respect to the Excess Amount, each day the Fund Operating
Expenses for each class of a Fund shall be annualized. If the annualized Fund
Operating Expenses for any day of a class of a Fund exceed the Operating Expense
Limit for that class, the Investment Manager shall remit to the appropriate
class of the Fund an amount that, together with the waived or reduced investment
management fee, is sufficient to pay that day's Excess Amount.
1.4. 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 each
class of each Fund with respect to the previous fiscal year shall equal the
Excess Amount.
2. RECOUPMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS.
2.1. RECOUPMENT. If on any day during which the Management Agreement is
in effect, the estimated annualized Fund Operating Expenses of a class of a Fund
for that day are less than the Operating Expense Limit, the Investment Manager
shall be entitled to recoup from such class of the Fund the investment
management fees waived or reduced and other payments remitted by the Investment
Manager to such class of the Fund pursuant to Section 1 hereof (the "Recoupment
Amount") during any of the previous thirty-six (36) months, to the extent that
such class' annualized Operating Expenses plus the amount recouped 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
Recoupment Amount and will not include any amounts previously recouped.
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 each class
of each Fund for the prior fiscal year (including any recoupment payments
hereunder with respect to such fiscal year) do not exceed the Operating Expense
Limit.
3. TERM AND TERMINATION OF AGREEMENT.
This Agreement shall have an initial term through June 30, 2000.
Thereafter, this Agreement shall automatically renew for one-year terms unless
the Investment Manager provides written notice of the termination of this
Agreement to the Company at least 30 days prior to the end of the then-current
term. In addition, this Agreement shall terminate upon termination of the
Investment Management Agreement, or it may be terminated by the Company, without
payment of any penalty, upon ninety (90) days' prior written notice to the
Investment Manager at its principal place of business.
4. MISCELLANEOUS.
4.1. 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.
4.2. INTERPRETATION. Nothing herein contained shall be deemed to
require the Company or the Funds to take any action contrary to the Company's
Articles of Incorporation 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
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deprive the Company's Board of Directors of its responsibility for and control
of the conduct of the affairs of the Company or the Funds.
4.3. 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.
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 ADVISORY FUNDS, INC.
ON BEHALF OF
EACH OF ITS SERIES
By:
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Name:
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Title:
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PILGRIM INVESTMENTS, INC.
By:
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Name:
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Title:
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SCHEDULE A
OPERATING EXPENSE LIMITS
This Agreement relates to the following Funds of the Company:
Maximum Operating Expense Limit
(as a percentage of average net assets)
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NAME OF FUND CLASS A CLASS B CLASS C CLASS M
------------ ------- ------- ------- -------
Asia-Pacific Equity Fund 2.00% 2.75% 2.75% 2.50%
MidCap Value Fund 1.75% 2.50% 2.50% 2.25%
LargeCap Leaders Fund 1.75% 2.50% 2.50% 2.25%
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